Energy CEO Grant Norwood discusses investments in Oil and Gas, while Yoseph West talks with Steve about challenges facing small businesses.

Episode Transcript

Intro:

Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.

Disclaimer:

The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.

Chip Franklin:

Welcome to another edition of Practical Tax with tax attorney, Steve Moskowitz. Steve, you and I were just talking about energy and about electric cars and about the state of California then as we speak with the power grid being stretched to the max. So I thought it'd be an excellent time to bring in our first guest, Grant Norwood. Grant is CEO of Norwood Energy Corporation, which he'll tell us a little bit about that because that's down in Texas and he's nice enough to join us here. He also handles the day-to-day operations and evaluates oil and gas prospects and minerals. It's a lot.

Steve Moskowitz:

Good old Texas, with no state income taxes.

Grant Norwood:

We love it.

Steve Moskowitz:

I know. It's a bit different here in California with such high income taxes. And so many people in California are moving to your state.

Grant Norwood:

That's true. If you moved over here you'd probably have an easier job.

Steve Moskowitz:

Probably would, but people everywhere need me.

Grant Norwood:

That's true. That's true.

Chip Franklin:

That's true. That's a racket that Congress set up with taxes. What was the 16th Amendment with taxes? What year was that, Steve?

Steve Moskowitz:

Taxes became effect in 1913 and I was not in law practice in 1913. I just want that to be clear. And when the income taxes came in, it came in as a tax on the wealthy. The top tax rate was 6%. And do you know how much income you had to be making in 1913 dollars to hit that top 6% bracket? Half a million bucks.

Chip Franklin:

Wow.

Steve Moskowitz:

In 1913. Do you know how much money half a million dollars was in our dollars in 1913? That's how our income taxes started out. And that's what happens when the government starts off with just a little tax that'll only affect a few people. And look what it is today.

Chip Franklin:

There was a panic of 1913, too. Wasn't that a run on banks? There was a difficult time, right?

Steve Moskowitz:

There have been all kinds of challenges. But again, I'm focusing on the tax. And there there's so many taxes that governments start off with, "Oh, let's vote it in. It's not going to affect you." For example, politicians saying, "Oh, we're going to put this tax on corporations but it won't affect you." Well, of course it will, because corporations say, "Okay, my costs are up, therefore I'll just charge more and consumers pay it." So that's why when people think about a tax, they should think, "Well, wait a minute, this could really affect you. What's the government doing with the money?" And that's one of the many reasons I became a tax attorney.

Chip Franklin:

Speaking of which, taxes in the state of California on gas, this is your belly whip, Grant, make it so much more expensive here to purchase fuel than it does in other states. Well, let's talk about where the price of crude and gas is right now for Americans. It seems to be going down since the last time we talked to you appreciably, especially in the last six weeks. Where are we headed, and how long will it take to get wherever that is?

Grant Norwood:

Well, we have seen the prices fall back just a little bit. I would say that it's a little bit of this renewed Covid fear. We don't really talk about it over here much in the States, but if you kind of read the publications and some of where demand has a little bit of a retracement, it's all coming from Asia primarily. So you've got a little bit of that issue. There hasn't been any new, I guess, tension over in the Middle East. So what was driving it before was just the fairly new information about Ukraine and Russia. And then I think we're about to probably climb back up. So we've gotten over kind of these little, I guess, sensational events that drive it one way or the other. Now it's evident that we're still far behind on supply from where we need to be. So we saw it climb just a little bit, it looked like we were headed to 100. Today we're lower, but I think next week you're going to see it go right back up to if not 100, somewhere in the high nineties.

Steve Moskowitz:

And Chip, the part I look at is from the investor's point of view. Our Congress has given such tremendous benefits to oil and gas. Look about the exemption from Alt Min taxes, look at all the writeoffs with intangibles. And the bottom line is, Congress has so favored the oil and gas industry that for many people it's just a tremendous investment. And besides the investment itself, all the tax benefits that go along with it.

Grant Norwood:

Correct. Correct. And they're buying votes by trying to shame it, but they're supporting it physically by supporting all the tax benefits because they know we need it. They know it's not going anywhere. But hey, it's kind of in vogue to talk about the green initiative and to make it a little bit harder on the oil and gas companies. But the policies and the topics of conversation, they just conflict with each other.

Steve Moskowitz:

Absolutely. And let's take a look here in California for a second, what we were talking about off air.

Grant Norwood:

Yes.

Steve Moskowitz:

Where California says, "Okay, we want to have all these electric cars" and then they say, "Oh, by the way, but don't use your electricity."

Grant Norwood:

Right.

Steve Moskowitz:

So how is that going to work? And oil and gas is so vitally needed. And again, there's a lot of things that are not considered. For example, somebody says, "Well, look. If you have a commute, you can charge up your car while you're at work." And that's fine, but a good thing about oil and gas is gas stations, filling stations, are all over. What about that good parent who's very green conscious that drives the car to work and the car has to charge up for some hours, and then that parent gets a call from the school, "Oh, your kid was injured. We sent them off to the hospital." And the parent wants to go to the hospital, "But wait a minute, the car's not charged up."

And although yes, the car could be out of gas, but if it is, that's five minutes in the filling station, not hours at some charging. So the bottom line is what Congress is really talking about is in the pocketbook, having all these advantages tax wise. So the bottom line is, oil and gas is not only very, very much needed, but also is here to stay and a tremendous investment with all these tax incentives.

Chip Franklin:

Well, aren't a lot of the oil and gas companies investing in the new technology? I remember reading where Exxon, some people may find it ironic, but they're really looking to try to get as green as possible because they know that there is something coming about.

Steve Moskowitz:

It's just like the tobacco companies investing in cannabis. It's you go ahead and you say, "Let's make a good investment." But basically, for all of our lifetimes, oil and gas is alive and well and a tremendous investment.

Grant Norwood:

Right. And just from our end, I'm only got one private equity fund, but from most of my PE back to associates, they're asked to at least have an ESG component somewhere in their portfolio.

Chip Franklin:

What is an ESG component?

Grant Norwood:

It's basically something green in the portfolio, just to make it easy. So what they're doing is tiny investments into it just so they can check the box and get the t-shirt. But they know that's not where the money is. They know it's a loser from an investment standpoint, and it's virtually ineffective if not more detrimental to the environment than actual oil and gas. But just to kind of check the box because if you don't, there might be a mob outside of your building. They're just implementing what little bit they have to.

So I think that the bigger companies are doing that as well. There's so many activists, investors, and they've got such strong followings that it actually helps them just to appease a little bit. And kind of in a market like we're in, where everything's falling except the energy sector, it's kind of your only hedge if you don't want to just pull out the market all together.

Chip Franklin:

What is the status of drilling and new exploration? Where does it stand right now?

Grant Norwood:

I think that we're slowly going to start seeing a resurgence here in the United States. You're not really seeing it anywhere else, and it's lacked for so long that we're far behind. And I think maybe it turns a corner three, four years from now. But let's say they really, really get started three or four years from now. Corners have radiuses, and it takes a long time to make those turns. So depending on what you subscribe to, $150, $200 oil. I personally think over the next six to nine months we might even see $70. But then I think it climbs right back, because there's not really anything to tip the scales and provide enough energy to where we have a low pricing environment again, or even normal pricing environment, it's just gone with the wind.

Chip Franklin:

Steve, does investing in energy generally require a person to be an accredited investor?

Steve Moskowitz:

Yes. Now it also depends. There's some things that are riskier than others.