Eagle Ford Shale Financial Planning Scams
George Bernard Shaw, the Irish playwright and co-founder of the London School Of Economics, once said “The surest way to ruin a man who does not know how to handle money is to give him some.” The Eagle Ford Shale oil and gas discovery has been a great financial blessing for many of those South Texans who are fortunate enough to own mineral rights. Even for many of those of us on the periphery of all this wealth, the “non – landed,” shall we say, the boom has provided good jobs and business opportunities. Unfortunately, since the days of Spindletop in East Texas, the same pattern of wealth creation and financial ruin has accompanied every single oil boom. A select few, those who know how to manage and reinvest their money, usually end up on top after the “bust.” In an interesting book titled “The Big Rich,” author Bryan Burrough chronicles the lives of some of the legendary Texas oil men who got their start in the Spindletop oilfield. Men like Roy Cullen, H.L. Hunt, Clint Murchison, and Sid Richardson would not only shape the Texas political and business landscape for decades, they would leave a legacy for their children that gave them a lifestyle not unlike that seen on TV shows like “Dallas” or “Dynasty.” One thing that all of these men had in common was that they sought the counsel of experts in the area of financial planning.
If you’ve recently received some substantial royalty or lease bonus income, you probably don’t have any intentions of setting your children up to be the next Hunt Brothers, however you will likely want to pass something of value on to them after you are gone. Apart from taking care of future generations, you will want to ensure that you have enough to see you into retirement, even after the wells eventually quit flowing.
Most landowners in the Eagle Ford Shale area of South Texas are conservative when it comes to financial matters. The very nature of farming and ranching in South Texas, with its harsh weather and the ups and downs of agricultural markets, has led these folks to become savers and planners. Others may not be so careful though, and are led on by the fallacy that oil and gas royalty checks will continue to roll in forever. The simple fact is, that unless you have thousands upon thousands of acres for oil companies to drill on, royalty payments will typically peak and then fall off rapidly after a few months, since shale wells tend to make most of their production in the first year or so. Those who believe that oil and gas income is like a “money tree” that never dies, may end up creating an unsustainable debt burden for themselves instead of money – making investments. To let the world know that they’ve “arrived,” some folks might build a gaudy ranch entrance, such as the one seen below, and build a much bigger home, which will come with its own big property tax bill, light bill, and so on. Their expenses will remain long after the income needed to maintain their lifestyle disappears, leading them to bankruptcy or a humiliating fall back to a more modest lifestyle.
Although the gaudy ranch entrance seen above, located near Seguin, is not from Eagle Ford Shale oil money, you get the idea. The ranch is owned by a secretive Mexican church called “La Luz Del Mundo.” It gets my vote for “the ugliest ranch gate in Texas.”
Eagle Ford Shale Landowners Need A Financial Planner
Both types of folks, even the conservative ones, need a certified financial planner to help them invest wisely and plan for the future. Even those who are used to managing money may underestimate the consequences of entering the nation’s highest tax bracket. A good financial planner can instruct Eagle Ford Shale landowners in areas such as investing, estate planning and succession, charitable contributions, taxes, etc.
There aren’t that many CFP’s with offices in small towns such as Yorktown or Carrizo Springs, so enter the “traveling financial planning show.” I am not suggesting that financial planning seminars held at your local Best Western are a scam, however one should question the wisdom of getting advice from people who may not remain in your area, and who are occasionally motivated by a desire for you to donate to their cause, as part of the “philanthropic” part of their lessons. Ask yourself this question: You wouldn’t have a root canal procedure done by a traveling dentist at the local motel, so why should you trust a financial planner operating out of a suitcase with your money?
There are a number of Eagle Ford Shale scams or borderline scams in progress at the moment. They include practices such as luring landowners into selling their mineral rights for pennies on the dollar, luring them into open – ended water sales contracts and bombarding new royalty recipients with requests for donations to questionable religious or charitable organizations. I don’t know that any of the current “financial planning seminars” fall into scam territory, but why take the chance? There are certified financial planners who work with large banks, such as Wells Fargo, as well as independent CFP’s who have offices in cities such as Victoria and San Antonio. You can locate a certified financial planner, or CFP by visiting the website of the Texas Financial Planning Association
Financial planning for Eagle Ford Shale landowners is not just about money. It’s about helping create stability and maintaining family harmony in matters related to property that will remain long after oil and gas production ends. With that, I’ll leave you with one more famous quote:
“Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” Albert Einstein.
Article by Nolan Hart. 2012. All rights reserved.