Chuck Yates Got A Job

00;00;00;03 - 00;00;20;09
Unknown
So well, where did we meet? Was it when you were with arm? Yeah. Yeah, we were at the arm. Some meeting when you were still cane with. With the arm crew. After your wrist. Before your wrist, I don't know. It's always a little hazy. Yeah. Before and after. On those things I always say about that. Do. That is my wedding.

00;00;20;09 - 00;00;39;15
Unknown
And I'm the bride and the wedding planner, so I'm entitled to. You know, those were great. That's great. All those were amazing. Yeah. Those are so much fun. We, we got Scott Sheffield this year. Nice. Yeah. No, it's, it's going to be a good time. The, So I've kind of got this hypothetical story for you.

00;00;39;17 - 00;01;07;05
Unknown
Dude, I know calls me out, so let's go grab drink. Hadn't seen in a long time. We go grab a drink and he tosses me a barrel of oil. That's a silver, dollar looking thing across the table. What was that all about? Well, I think, you know, people like the visual of having a barrel of oil, and we built we we printed a bunch of these solid steel WTI coins when we launched, when we had our kind of first launch.

00;01;07;07 - 00;01;26;13
Unknown
And we gave them a lot of like oil cause they're basically using with ball markers. Right. Okay. But you know and then I was be getting tax and emails like, goddamn it, you gave me a ball marker at 60. Now it's 90, right. And, and and so people would be like the only gift I've ever gotten. The went up in value, things like that.

00;01;26;13 - 00;01;43;21
Unknown
So it's you know, we each each one of those coins was basically minted individually. And it has a code in the back that if you have if you're pretty sophisticated crypto wise, you can go in and put in your code and stick it into your wallet. But I think most people are just using it in their golf games.

00;01;43;25 - 00;02;08;22
Unknown
No, it's on my dresser. So yeah, so tell me what you're doing with this. This was this was a this was a wild story. Yeah. So, you know, I've been in the, you know, oil and commodity trading my whole career financially, physically, you know, done been in, you know, in banking, you know, at and midstream marketing company, etc. and these guys were building the, the stablecoin of energy, right?

00;02;08;22 - 00;02;33;07
Unknown
That was their high level concept. There were kind of crypto guys from the West Coast, you know, fintech guys. And they didn't really know much about oil and gas. And so they they'd come up with a lot of theories of how oil and gas companies would like to use something like this, but they got in a few, you know, on a few calls with like Texans and like there's a major translation mismatch right there.

00;02;33;10 - 00;02;53;08
Unknown
And so they called me like, we gotta we these these Texan guys seem interested, but they're throwing all these acronyms around and they don't. And we don't know what the hell they're talking about. They don't know what we're talking about. We got to bridge the gap. So I started digging into it. And and basically, you know, it was kind of, sort of ending my last gig and it was a good time for me.

00;02;53;08 - 00;03;12;17
Unknown
And it basically I told them, you know, I've been explaining crazy shit to CEOs in the energy space my whole career, right? Whether it's derivatives or a midstream deal or whatever. And this sort of fits into that general theme. And so, and so I, you know, join my joke is, what do I do it, Clyde? I talked to the old guy.

00;03;12;20 - 00;03;42;09
Unknown
He said, yeah. So. Yeah, exactly. So, you know, and, you know, we've got a we've got a group of people. Some of them are like older fintech, physics major, math major guys who've sort of or like part of the ETF mutual fund, you know, conversion back in the 90s and 2002, you got, you know, 20 something crypto DJ and trader kids, right, who have never like, had don't own a single collared shirt and don't have like a bank account.

00;03;42;09 - 00;04;03;17
Unknown
Right. They just use crypto for everything. Right. And so it's a good mix of people. And I'm you know, I'm definitely on the, on the trad fi old guys spectrum. But you sort of need that to talk to all companies. Yeah you do. So break this down for me. What is a stable coin. And let's direct this to mom because mom watches podcast.

00;04;03;19 - 00;04;30;03
Unknown
Mom was valedictorian of Lamar High School back in the day and a rice graduate. So she is smart. But, oil, probably something she puts in her car, you know? So what's a stablecoin? Yeah. So stablecoins were, you know, my the CEO of our company, JP, he basically worked for expanded coming out uphold, which actually came up with the concept for stablecoins about ten years ago.

00;04;30;06 - 00;04;58;15
Unknown
Which basically means you issue a coin and back it with something in the real world, right? Like a dollar, a euro, a bar of gold, a barrel of oil. Right. And that that coin is stable relative to the value of the underlying asset. Right. That's the that's the terminology. It's real, real simple. It's like whatever that is that's backing it is 1 to 1 with with the coin that's been issued.

00;04;58;15 - 00;05;26;17
Unknown
So you take a coin which is a digital asset, right. It sits there in your, your wallet. But the underlying asset underneath is connected, you know, via smart contracts and that the tech of these coins, custody etc.. And the stablecoins have been developed, like tether was the big innovator, of the stablecoin market. They it was an offshore company.

00;05;26;19 - 00;05;47;09
Unknown
And they just attached $1 to one stablecoin, you know, so super simple concept, but it amazingly had a huge amount of resistance here in the US. Right. And and I think it's, it's I mean, I don't want to overthink it, but it almost sounds like a mutual fund. Hey, I got a bucket of stocks or whatever.

00;05;47;09 - 00;06;06;06
Unknown
Here is 1/100 of it or whatever, or. Yeah, or an ETF. I mean, the same concept for for the dollar stablecoins. It's a digital checking account. That's all it is right? You can use it to buy a car or you can use it to buy a pizza. You just transfer it wallet to wallet. Right. And same thing for oil.

00;06;06;06 - 00;06;22;06
Unknown
It's a digital checking account for oil. Right. So you own a barrel of oil. And I think, you know, when when you look at the adoption curve of this stuff. Right. Which I think, you know, and that's why it's cool talking to you, Chuck, because you guys, you kind of like pushing the adoption curve of a lot of stuff.

00;06;22;06 - 00;06;47;20
Unknown
I've seen you on the AI circuit and everything like that. It takes it takes a while to get this stuff adopted. Right? Because people are, you know, it's not the land of the blind, the one eyed man's king. But no, I won't I won't say I'm an expert on anything, but I know a little bit. Yeah, but it's it's, you know, you look at what say, having stablecoins, the concept originated in the US like eight and eight, ten years ago.

00;06;47;22 - 00;07;17;19
Unknown
Then that was being built by all these US entrepreneurs, right? They were the head of the game. And then the administration came in by administration and basically looked at this stuff and said, it's a threat to the dollar. It's a threat to the senior edge of the of the minting of coins of the realm, like all this conservative kind of old school thinking they were basically went on, kind of a war against crypto outlet, all this stuff.

00;07;17;19 - 00;07;37;07
Unknown
Gary Gensler, the Cbtc, CFTC, unbanked, some of my friends, all of you guys I know in the West Coast got unbanked without knowing, like actually JP or CEO got, by Wells Fargo, right? Yeah. So, that was real. And that was like this, this crazy period where they're like, we're not going to take any innovation, blah, blah, blah, right?

00;07;37;09 - 00;08;01;03
Unknown
And so then administration changed Scott Besson, like, pretty damn smart guy, right? And I love that he has fist fights in the halls of the white House and not just at but totally. Okay, so cool. He's a total yeah, he's a total cowboy, but he's really fucking smart, right? Yeah. And he looks at this stuff and he's like, why the hell are you banning stablecoins?

00;08;01;03 - 00;08;20;00
Unknown
Because all this is going to do is increase the strength and the and the spread of the dollar. Right. And so he reversed course. They signed the genius act. The rest is history. Now the stablecoin market is back in the US, right. The US companies are now kind of leading the charge again. But it almost went the other way.

00;08;20;00 - 00;08;47;23
Unknown
Right. And so, you know, when I said we're not we're doing stablecoins of oil and we're getting, you know, frankly, there's the same type of doubt in in kind of questions around the oil stablecoins as there was in the dollar, stablecoins because, you know, the oil trading system that you know well from like hedging and marketing and trading is a system that's been in place for like 50 plus years, works pretty well.

00;08;47;25 - 00;09;12;10
Unknown
Everybody's happy. The banks and the producers and the consumers can kind of hedge their risk. But there's never been a way to have oil and gas as a store of value. Right, right. And so this is a new innovation. And it's in basically it's going to allow people to use oil and gas in a different way. But as you know, you know, millions of oil traders, right.

00;09;12;10 - 00;09;41;02
Unknown
They're like, well, who's short, who's long? What's my risk? How am I gonna get arb like how you know, how someone's going to screw me on this deal, right? That's just the natural paranoia of, like, people in the oil trading business. And it's kind of like what's got best. And it he's like, you look back and says, look, if I issue a billion, $1 trillion more treasuries to people who are effectively in Nigeria and Argentina and Afghanistan, right?

00;09;41;05 - 00;09;58;19
Unknown
Yeah. They may sell my treasuries one day. That's that's a risk. But in the meantime, I'm going to enjoy all this working capital that's going to prop up the dollar in the American economy. Right? Yeah. And so he kind of thought beyond the risk and was like, here's a new way of thinking about it. And that's kind of what we're trying to do right now okay.

00;09;58;22 - 00;10;30;10
Unknown
So the reason I find this so fascinating is obviously I lived through -$37 oil. What was that? I think that was April 27th, 2020. But somewhere in there and the most googled, question that day was how do I invest in oil? Yeah. And what was fascinating is USO popped up. And so I studied USO and USO. I'm going to call it an ETF, although technically it's not an ETF.

00;10;30;10 - 00;10;55;11
Unknown
But basically what it does is it buys a nine max contract. Yeah. And then it rolls that contract as it goes forward and is literally the worst tracker to oil price on the planet. I'm going to totally make up all these numbers because I can't remember. But when I was studying it, there were, I don't know, 100.

00;10;55;13 - 00;11;37;23
Unknown
I will just round it to 100. There were 100 days where oil moved more than 1% or something. Yeah. And the USO was off by like 4% of that and only once did it track directly. So it's just it's it's a horrible proxy. But it was the only game in town. And so I actually went out and I drank too much one night, but had an epiphany, drafted an S1 for an entity called Trade Tracker, and the whole point behind True Tracker was to give someone a proxy for the price of oil, so you could go long or short.

00;11;37;23 - 00;12;01;13
Unknown
Yep. I mean, if you're a, homebuilder in Houston, Texas, you might actually want to short oil prices. You know, oil crashes. You're not building a lot of houses. Yeah, vice versa. You're, a taxi car. Taxi. Chris. Matt could use it. Yeah, exactly. Or, you know, to, taxicab company in Vegas. You might want to be long oil because that your your cost, you know.

00;12;01;13 - 00;12;39;06
Unknown
So anyway, I kind of found this fascinating. So walk me through kind of the mechanics of exactly how this works. And, mom, we're saying goodbye to you. We're now going to, you know, pick a sophisticated oil person. Sharon Sperling, the treasurer at Plains. Let's explain it to her. Sure. Yeah. So it's a they call them crypto land, a primitive, which basically means it's like a 1 to 1 collateralized asset that you can basically buy in cash and you stick in your account.

00;12;39;06 - 00;13;03;13
Unknown
You don't have to post collateral against it. It just sits there in your account. But the mechanics basically are we we sell a token to an investor, right? That token gets minted and that gets minted at the close of WTI of that day. Okay. We adjusted a little bit on those rules. So we're not getting caught up with them.

00;13;03;14 - 00;13;28;07
Unknown
-37 you know no deal. But basically we smooth a little bit. But effectively you're getting the day you buy it. You're buying at the close of WTI right. Yeah. And then then you basically have a token that's freely tradable on the secondary market. We take to issue that token. We buy a barrel of oil digitally from oil companies.

00;13;28;07 - 00;13;54;12
Unknown
Right. So we'll go to our list of suppliers which we're kind of growing every day. And we will effectively say who wants to sell oil today to this to attach to this code to substantiate the token. That's what our company's called mica energy substantiation. So that token then becomes attached to what we call a digital energy receipt, which basically is a it's like a bank deposit, like a CD of oil.

00;13;54;16 - 00;14;13;14
Unknown
Right. So think about the, the basically the innovation we put together is we're creating a bank of oil. Right. There's a bank of dollars, many banks of dollars. Right. No, there's now there's actually there's banks of gold. There's vaults in London, in Switzerland that have gold that back up the tokens. But there's not a bank of oil anywhere.

00;14;13;15 - 00;14;35;00
Unknown
There's 100 million barrels of oils permanently stored within about ten miles of here. Right. Okay. You know, the Gulf Coast, you know, the the ship channels, etc., but there's no, you know, you can't stick a, you can't stick a barrel of oil in a, you know, in a sort of virtual bank and, and issue a certificate of deposit against it and withdraw it in ten years.

00;14;35;00 - 00;14;55;02
Unknown
That concept doesn't exist. Right. That's kind of what we've we've set up here. And so you as a token holder, you buy it at a spot. Then that trades on the open market. Right. So it should track very closely to spot. But the way you ensure it's going to attract a spot is that you can sell it any day.

00;14;55;05 - 00;15;20;26
Unknown
At the close of cash or cash card you can redeem it. So it's we don't we don't make a market against say WTI futures or anything. But once a day you can buy and sell at the close. Right, right. And so it arbitrage is intraday to the price of oil. So it's a spot product. Right. And so what do you have when you have one of these coins you've got in your wallet.

00;15;20;27 - 00;15;46;25
Unknown
You know Coinbase Binance whatever Kraken whatever exchange you use uphold. You have an instrument which will basically track WTI for as long as you hold it one minute, one day, ten years. And then so that coin I gave you, like in ten years, you'll be able to go and redeem it or sell in the open market for whatever WTI spot is worth at that time.

00;15;46;25 - 00;16;21;08
Unknown
Right. So okay, that that's interesting because the the way I got around that with true tracker is I basically set up a royalty trust. And it would run for some period of time 12 months, 18 months. And then when the futures contract paid out it would distribute all the proceeds in cash. So that was my mechanism of, you know, and and it was because technically it was traded on an exchange.

00;16;21;10 - 00;16;41;11
Unknown
You could go long or you could short it. Yep. So that the arbitrage, it had to be close. You have to have it arbitrage. So it's not a spot product. Yeah. Exactly. So you would call up Jay Errand and if Jay Aarons price was 75 and true Trackers was 77, you'd short true tracker all day long and buy from Jay and you know and lock in an arbitrage.

00;16;41;11 - 00;16;58;14
Unknown
So I always felt like it had to be locked in. So you're doing it by by basically you can cash out, you get you out. And I mean you had the right you had the right structure there. I mean, basically you have to be able to for a spot because I spent $1 million and I didn't get it done.

00;16;58;17 - 00;17;26;18
Unknown
It's a very fancy doorstop. Yeah, it's household, but, but yeah, it has to be, you know, it has to be arbitrage against the, the, the foreign markets. Right. And so that that's the way we get around it. And, you know, if you're a market maker, if you're German or you're, you know, Galaxy Digital, like a who has a market making business where you have crypto and a CME license, you can you can arb that, you can hedge that.

00;17;26;18 - 00;17;49;16
Unknown
So you're the one who's going to provide liquidity. Like if you want to boil 75 and you want to buy it today at 75, at whatever 1:00 in the afternoon, you call up, you'll be able to call one of our market makers and they'll say, fine, here's 75, 20 is your price, you're done. And then they will be able to hedge themselves by doing a Tass trade, like a transaction, etc., so they can basically hedge themselves in the market.

00;17;49;22 - 00;18;12;04
Unknown
Right? So, you know, it's it's it's it's going to be complementary with the futures, with futures pricing, and futures dealers. Right. They'll basically it'll give them another market to trade basically. Yeah. Because, you know, another thing I found interesting when I was digging in there and trying to figure out, okay, people need to be just regular Joes need to be able to go long and short oil.

00;18;12;04 - 00;18;35;20
Unknown
It's just two part to important to the economy. I mean, I ran a private equity oil and gas fund for 20 years, and at least at one point I was rich. Not not anymore, unfortunately. But back in the day, I was Morgan Stanley. I had to beg and plead to be allowed to trade on the nine max. You know, I mean it.

00;18;35;25 - 00;18;59;22
Unknown
And so, really, all true tracker did was give public shareholders the ability to trade in small bite sizes. What they could accomplish on the nine max. But trading commodities on the nine max is tough to do for, for an individual. And so, I mean, you've got to, you know, open accounts. You got to post collateral on a daily basis.

00;18;59;22 - 00;19;25;00
Unknown
You got to be looking at it every day. You can get blown out of your position if you if you aren't paying attention. It works for the industry. It doesn't work for investors. Right? So and and I always kind of had the theory too, of, you know, okay, Exxon's an investment, Chevron's an investment. But there's so many gunslingers and oil and gas that's not a good proxy for oil prices.

00;19;25;00 - 00;19;45;23
Unknown
I mean, they could do some really stupid stuff on any given day. And so, okay, so walk me through. I'm going to I'm going to play Critical Investor here and walk through. So I understand the mechanics and I'm trying to blow this up. Yeah. This is where I'm going with this. So don't worry. You're not the first.

00;19;45;23 - 00;20;17;02
Unknown
Yeah exactly. So I, I buy the coin from you guys and I get it. And then I go to cash out. So you have to have the cash when I want to cash out. So how do I how do I guard myself against your balance sheet. So there's the I think the way to think about it is there's 454, 25 million deep crude oil barrels in the d.o.e. stats.

00;20;17;02 - 00;20;38;28
Unknown
And I think that just came out this morning. Right. There's a big draw because of the war etc.. But 400 plus right. Yeah. Those barrels are permanent inventory in the United States because they are used by oil companies for reliability purposes, not speculation. They're not they're they're drawing down a little bit here and there because of the war.

00;20;38;28 - 00;21;04;15
Unknown
So there's a little bit of an extreme like I think it was 17 million draw this morning. That's a huge draw for the US right. Usually it's like 2,000,003 minute. It stays real stable because what is that line. Fill in pipes tank bottoms oil and barges, oil and storage facilities that are like, you know, Valero's holding 90 days of stocks tomorrow because it can't stop producing gasoline even if there's fog in the ship channel.

00;21;04;15 - 00;21;30;19
Unknown
Right. There's all these buckets. And so those barrels are backing your coin digitally. Right. So we're going to buy oil from big companies who have a lot of oil and they're going to look at this as a, a way to improve efficiency for their working capital. Right. But they've got big balance sheets. And so if you the, the, the, the most obvious way you're going to, you've gone long a coin and you decided I'm selling it.

00;21;30;19 - 00;21;51;18
Unknown
You're going to go on the secondary market right now. You're going to sell it right. Yeah. Okay. So 99% of the time you're just going to sell on the secondary market. Now, theoretically there could be a dislocation right in the secondary market versus spot or you know, if the whole system melts down or something like that and you and you or you just want to redeem, even though it costs you a little money to redeem.

00;21;51;18 - 00;22;08;13
Unknown
Yeah. You'll say you'll call us and say, I'm redeeming my coin, right? So then I reverse the deal with one of our suppliers, right? I'm saying you're going to then buy back that barrel that we purchased from you at spot. That's the deal we have with them, okay? And they pay us two days later and you get your money two days later.

00;22;08;13 - 00;22;29;16
Unknown
Okay. So it's a, you know, at the end of the day, you are relying on performance of these large real companies, governance more than your balance sheet. Yeah. It's like there's oil there. They have to buy it back. It's going to take a day or two in the real world to get that stream of payments done. It's not all in the crypto or cryptos like that, right.

00;22;29;16 - 00;22;51;06
Unknown
Yeah. Trad fives like two days. Right. So so if you choose to redeem, you'll get your money. But two days later and you'll have a there's a page on our website they called it, it's called the transparency page. And that's what all crypto are like RWA tokens is what we like. Real world asset tokens, gold, silver, etc. they publish.

00;22;51;08 - 00;23;26;20
Unknown
Here's how many coins we have. Here's here's how much oil is in our is in our system. Who's our auditor? Who's our custodian. You can like look and see what's backing up the coins right. And so but look, that's the question everybody asks like, okay, if, if, you know, but let's run through an example if, if, if a large oil company has 10 million barrels in permanent storage on barges in Texas in line or whatever, and we buy a million barrels from them, and they're using a million barrels worth of working capital, 75 million bucks, whatever they've got, you know, a bank facility, they got tons of liquidity.

00;23;26;20 - 00;23;44;00
Unknown
If I if you call up and say, here I just redeemed 100,000 bucks worth of oil, they'll be like, sure, send me the invoice like we're done. Right? It's not a it's not a and we're not going to buy. They have $10 million available. A they have 10 million barrels. We're not going to buy 9 million of their barrels.

00;23;44;00 - 00;24;07;27
Unknown
Right. We're going to buy 3 million. Right. So and and I would think is they're going to so so you you you me watching you is just governance. Does the guy do what he says he's going to do. Yeah. And and there will be some big custodian relationship like you were talking about earlier. So that that's getting me comfortable there.

00;24;08;00 - 00;24;29;03
Unknown
Then we're going to these larger companies. Are you also going to run a credit function? Yes. Kind of on those. So yep. Old school, old school banker watching the balance sheet, you know. Yeah. We run a full credit review just like we're doing like an RBL or something like that. Right. So, but yeah, we're not the, we're not the balance sheet.

00;24;29;03 - 00;25;03;09
Unknown
You're relying on us. Well, we have some capital to like, if we get a little order, we'll just, you know, balance the system. Right? There's a big redemption. It goes to the ultimate suppliers. We run an initial screen, which looks just like a credit review like that you've seen a million times. Right. And then we have, literally a credit officer, right, who sits there and like, writes all these things up and, like, plugs them into the system and then that's gets tracked, you know, in our book and then ultimately is reported to the custodian.

00;25;03;12 - 00;25;45;25
Unknown
It's the, the 10 million barrels in line in barges, etc.. Is that part of the credit facility with these bigger companies? And are you doing, some sort of good, good. That's a great question. Right. Because we need unencumbered barrels. Right. If you've sold them or pledged to somebody else, we can't buy them. Right. So what's what's kind of interesting is the upstream guys like the producers, the oil that's between the lease and selling it to the market is typically unencumbered because they're reserve they there are bills on the reserves.

00;25;45;25 - 00;26;07;06
Unknown
What's in the ground. Right. So it's like it's kind of almost a piece of industrial equipment. Like it's like the truck on their on their lease or their office building whatever. They don't pledge it. That's unencumbered. Now. They don't have as much of it. Is the midstream and the downstream gas. Right. To be clear. Right. Yeah. So it's actually incremental capital for them because they as one guy who we talked to is smart CEO.

00;26;07;07 - 00;26;25;23
Unknown
He's like, Holy shit, this allows me to sell that last barrel of oil. The only way I was ever going to get money for that is when I wound down my business. Right? Because it's sort of flowing from the lease to the Lac unit to the terminal to the pipe, to the marketer, and he gets his money 30 days later and he never that last.

00;26;25;23 - 00;26;46;17
Unknown
That barrel that, like, sits on his lease is like dead working capital to this gas. Right. So it's incremental. Now, your question about the credit facilities is good on because mostly the downstream, like the refiners in the midstream guys have ables. And so they and they're but they're not cheap. These thing you know and they get a X percent advance rate.

00;26;46;17 - 00;27;05;02
Unknown
And cetera. So they're going to look at this as and some of it they can't even finance honorable like some of their like line fill and tank bottom stuff. They don't even they can't even finance on the table. So but they'll take a barrel off their ABL and sell it to us. Okay. And the reason they'll do that is because it's cheaper, better cost of capital.

00;27;05;05 - 00;27;25;05
Unknown
You know, they can it's more efficient for them. What's an ABL asset. Back loan. So that's a balance. Yeah. So so those guys are like you know refiners I'm an MP guys. So my RBL got exactly what I was like. What is this ABL. Yeah. Once you go into the midstream where is ABL. Got it. So they have like all their they'll be like say a refiner.

00;27;25;05 - 00;27;47;20
Unknown
They'll have crude and tank. Then they'll have diesel and gasoline and storage and they'll you know Goldman Sachs or something will give them an ABL on like 90% of that or something like that. And so they can so they can finance it. But this is sort of this is sort of cheaper, less invasive capital than, than the banks because sometimes they make them hedge it.

00;27;47;26 - 00;28;10;06
Unknown
They have processing fees through. But you know, there's a, we actually think it's going away. We'll help out banks because they, they love having the relationship loan as, as that. ABL it's a big, important piece of paper for the refiner. But that credit exposure hits, you know, sits pretty heavily on banks balance sheets. Right. Because they're always trying to do other stuff.

00;28;10;06 - 00;28;29;23
Unknown
Do derivatives do another deal with them. And so if you can yeah that's the oscillator. Yeah. To the bank. Exactly. So if you reduce the the notional from 100 million to 80 million or 50 million for banks, they're like I keep my paper, I keep my loan, I keep the relationship, I keep that loss later. But I only have to take half the credit exposure.

00;28;29;23 - 00;28;50;07
Unknown
Like right. Cool. Thumbs up. That's. Yeah. So these things are going to have to get sort of learned and worked out in the market. But that's that's how it's going to work. And that's kind of cool. All right. So mechanically I understand how I buy and you get the cash. How does the process work of getting the barrel.

00;28;50;09 - 00;29;19;06
Unknown
So we've set up, we've built a trading platform. Right. And it's going to, and it's now fully operational where we run a reverse Dutch auction for barrels. Right. Okay. So, so think about an order. Comes in for a, for a coin, let's say a million bucks comes in and we've got 20 suppliers signed up. Right. Each one of these suppliers has an account in our system.

00;29;19;06 - 00;29;37;17
Unknown
It's called strata. It's a pretty cool. Our tech guys built it. They look in the corner, it says you know, Chuck Yates Enterprises, your line is 200,000 barrels, right? Because that's what you have in tank. We've done our review. You're my you're credit on me. Yeah, I've done my credit on you. Gotcha. We know you've got 400,000 barrels.

00;29;37;17 - 00;29;56;28
Unknown
So we're going to give you a line of 200 right. Yeah. You'll get an email. It's like an RFP. Right. And it'll say we need, a million barrels submit if, if you like, if you want, if you need the money, if you are weak, you know, or you know, if you want to participate. No, there's no there's no obligation.

00;29;57;01 - 00;30;17;04
Unknown
And so then you will bid into the your basically submit your barrels at a price which is relation to it's a discount to the spot price. And you're going to bid, you know, a small discount that's going to be an attractive cost of capital, let's say 2%, 3%. Right. So you'll be fine. I'll if was 100 I'll bid 97.

00;30;17;04 - 00;30;41;03
Unknown
I'll be great. You win. Now your barrel is going to be substantiating that a portion of that order, you're going to get a energy receipt. It's, Moebius, you know, hedging. You've probably heard of Moebius. So those guys, the hedge advisors, they're awesome. There are partners, in this in there. And they basically manage the front end for producers.

00;30;41;03 - 00;31;05;18
Unknown
Right? So they're they'll get a, you'll get an email from them saying you sold, you know, 100,000 barrels, just like you did, kind of like a hedge. And, and then that that order gets filled, we fill the order for the investor, and then now you've you've got that digital receipt where effectively, I've bought whatever, 100,000 of your barrels.

00;31;05;21 - 00;31;27;09
Unknown
And you keep that oil stays in your tank, you keep it. We never until someone redeems a token, you just sit on it. Right. So there's a button. So 3% permanent financing. Not even an annual. Yeah. So it's it's, you know, it's a it's a good deal for folks, right? So, you know, Mobius is actually who I worked with on Trade Tracker.

00;31;27;09 - 00;31;51;07
Unknown
So cool. Paul smith. Yeah, well, up his sleeves. Spent a lot of time with me. Yeah, they were, they were because they were basically going to go into the market and buy the financial futures for us and help us on that front. Yeah. No they're great. They're, they're, they're a understand every aspect of the energy markets. And they helped us troubleshoot a lot of stuff kind of in our mechanics and things like that.

00;31;51;07 - 00;32;16;00
Unknown
And yeah and ultimately they've got a risk system built. So we're like why are we going to build that ourselves. Like let's right. And producers and other companies are used to it. So it's, it's so, so okay, so I understand that I also think if I'm a, if I'm a company of some sort, no reason not to max out my, my capacity with you every chance I could get.

00;32;16;03 - 00;32;42;06
Unknown
I mean, it's permanent financing. Yeah. I mean, once people understand it, that's what they're going to do. Rational. Yeah. Right. It's going to take a while for them to understand it. Right. Because I, in effect, pay the interest upfront. It's like you get a little discount and then you just sit on that. Right. So, you know, people companies are used to funding with either equity or debt.

00;32;42;09 - 00;33;04;01
Unknown
Right? Right. You know, the pros and cons are both. Everyone understands. Yes. You equity. You've sold a part of your company. You issue debt. You owe that money back under very strict terms at some point in the future. And if you don't pay back, then they got you over barrel, right? So those are but those are risks that every CFO, the pros and cons of that they understand clearly.

00;33;04;02 - 00;33;30;03
Unknown
Right. Because if you get debt and it's 10% that's better than debt. That's at 6%, right? It just it just people have gotten used to debt or equity capital over the years. Right. So this is a new form of capital right? It's blockchain capital. That's kind of what I tell people. And the the the risk profile and the and the in the in how it operates is different from those guys.

00;33;30;03 - 00;33;57;16
Unknown
Right. You issue you're going to receive capital at a small discount. And then you are subject to some potential uncertain redemption in the future. That doesn't depend on me. It's not a short position, doesn't depend really on the investor. It depends on the overall ecosystem of these coins. Net growing on on that basis over time. Right. And that's the risk you're taking.

00;33;57;16 - 00;34;15;17
Unknown
And that's the risk that people have to understand a little bit better. Right. And so you're not you don't have a maturity necessarily, although we're going to have we're going to have tools within the program that if you want to do it for one year or two years, you can. Right. So you'll be able to manage your liabilities and things like that if people want to.

00;34;15;20 - 00;34;42;21
Unknown
But net net, the only time you have to redeem is if there's a net burn in the system. Right. And so what we're trying to kind of educate folks is like these coins gradually build over time, right. In terms of the overall outstanding like, you know, take the stablecoins, right? I think one of the big resistance that the US government had was, well, you know, we sell 500 billion in treasuries tomorrow.

00;34;42;23 - 00;35;03;01
Unknown
And then everybody redeems the next day. That's going to screw up the Treasury market. Right. What I didn't realize is no, these are like guys buying five bucks of this stuff in Nigeria and another guy buying five bucks and another guy buying 100 bucks. It just gradually the sort of ecosystem grows. And so it's very stable capital. Right.

00;35;03;01 - 00;35;21;28
Unknown
Once it starts getting that network effect, it's big. Right. And so, that's what's that's what's going to happen in the oil. Oil and gas, you know, for oil and gas stablecoins. But you know, we need lots of users, right? You need guys who are buying oil, you know, as a hedge, like, you mentioned, for gasoline, right?

00;35;22;01 - 00;35;41;10
Unknown
You have guys buying it, you know, for their grandkids, like, you know, no, I think every Texan should have like a WTI coin in their stocking. Right. Because they're you know grandpa gives them a barrel of oil. Like how can you do that today. You can't you know. So it'll be you know, because if you think about it I'll just make this up.

00;35;41;10 - 00;36;05;29
Unknown
If I spend $4,000 a year on gasoline, just drive into the office and stuff. I don't know what the right number is, because I've never been a wealth manager and never understood the portfolio. But owning some coins probably makes some sense to, you know, if I know I'm going to spend four grand, that could go to six. Yep.

00;36;06;00 - 00;36;34;08
Unknown
Yeah, yeah, I own something. If you get. Yeah it is a 1 to 1 hedge. Right. And so I think yeah. And we've seen that there's you know it's been great in the last couple of months. Is the attention on oil as a macro risk has has gone through the roof. Right. Yeah. You've seen it. And and one of the big questions we've always gotten from investors or partners is like, well, this is a this is crypto currency, right?

00;36;34;08 - 00;36;59;25
Unknown
It's a it's a blockchain based coin. You know, do traders in blockchain care about oil. Right. And it was a question we really didn't know the answer to because most you know crypto traders especially retail traders, you know, they're like they call them jams, right? They're the 20 year olds in their mom's basement in like Kuala Lumpur. Right.

00;36;59;27 - 00;37;25;13
Unknown
And they've got but there's 700 million accounts worldwide, right. Basically everybody under the age of 25 has a crypto account like you just met my intern. Like that guy just he doesn't trades fidelity account. He trades his crypto account. You heard the. Have you heard the Yates family, crypto story. So, oldest daughter Charlie, age 11, is mining bitcoin on the home computer, unbeknownst to mom and me.

00;37;25;13 - 00;37;51;18
Unknown
Right. And proceeds to mine nine bitcoins. This is way back in the day. Right. And Charlie comes to me and says, dad, I need a pair of Yeezys. I'm like, what the hell are Yeezys? You know, those are Kanye shoes. And I go, okay, well, how much that costs $900. I go, you know, no, no, 11 year old needs $900 shoes up for no, can't do it.

00;37;51;20 - 00;38;13;17
Unknown
So all of a sudden a box comes in the mail and it's a fake pair of Yeezys from China. You know, some address. Shanghai, whatever. And I'm like, what the hell is that? Well, dad, I went and bought some fake Yeezys. She puts them on, she proceeds to go outside. There's a puddle of water. She steps in it.

00;38;13;17 - 00;38;34;03
Unknown
They disintegrate. And I go, how did you get those? I use my nine bitcoins on it. Yeah. So about every six months I text her and I go, hey, what's nine bitcoins worth these days? Shut up. Dad, you could bought the entire stock of Yeezys that Adidas, gave back to the market. Yeah, they kicked him out.

00;38;34;03 - 00;39;04;27
Unknown
Right. Exactly. After after that rant, the, one last question. So the credit, and again, I'm wearing my critical investor hat. The credit, the ongoing credit review of the people you have bought the barrels from, you know, old school oil and gas. I have a reserve base, you know, Redetermination. And I'll. I loaned you 20 and your reserves went down.

00;39;05;00 - 00;39;24;24
Unknown
Now, I should only loan you ten. You got to pay me ten back. Are there mechanisms in that in your agreement? Yeah. Do kind of deal with. There certainly are. I mean you have to you make an attestation right when you sign the agreements with us. So it's it's just one agreement. It's super simple but so I get GT C's right.

00;39;24;24 - 00;39;48;16
Unknown
And you basically say I have X amount of barrels in these facilities. Right. And then annually we're going to ask you to refer reaffirm that. Right. And, and we will have the ability to audit. And we can look at a lot of public data and check right. The and, and if, if you're public, you know, it's announced every quarter like here's my inventories of X, Y and Z.

00;39;48;18 - 00;40;10;11
Unknown
But we'd basically the theory is that anything we're never going to buy enough barrels that your normal business variation is going to affect it. Right. So but if you sell half the company, you're going to maybe have to buy half, half those back. Right? Because you're, you're you had a million barrels. We underwrote you on a million barrels.

00;40;10;13 - 00;40;36;16
Unknown
Now you've got a 500,000. So that's a material reduction. So right will then at that point you, you will have to redeem. But the interesting thing is, I mean, look, you you've been private equity for a long time. The first question I get from companies like what happens if I sell. Yeah. Like because, you know, the first thing that people that you mean, the biggest issue for anybody is that there's constrained in any way, shape or form when they're going to look when they're getting a liquidity event.

00;40;36;16 - 00;40;58;02
Unknown
Right. And so you can literally unwind this in a day. So you basically you can buy coins and redeem them, or you can just go to us and then just unwind the, the, the allocation. And then we'll replace them with someone else's barrels in one day. Right. So there's no there's no this is not a long term thing.

00;40;58;02 - 00;41;15;16
Unknown
You have to worry about hanging over your head if you've if you're selling a business. Right. So and that's if you compare that to like you're matching like a hedge. Right. You've got to call up your banks to be like is it potentially transferable to the new buyer. Sure. I mean yeah okay. I got to do credit review I'm the new buyer and they check out.

00;41;15;17 - 00;41;36;21
Unknown
Great. We're good. I mean, one of the big usage use cases we've seen that people are that there's friction for folks. Is is Linville right. When you're selling if you're an upstream or midstream guy and you you're selling an asset that has Linville in it, right? There's usually that or Oftentime that gets funded in equity because kind of hard to finance.

00;41;36;23 - 00;41;55;20
Unknown
And so there's that adjustment. Well, my Linville was worth 30 million when I started working on the deal. Now it's worth 50. Goddamn. And I got to go put another 20 bucks of capital against this deal. Right, right. And so we'll just be like, well, we'll own that Linville from company and we'll on it from line B, company B, as long as their credit worthy, etc..

00;41;55;20 - 00;42;15;21
Unknown
Well, you know, you don't really have an issue like so I think that'll be one of the larger use cases kind of in the oil company side of things. That's, that's that's, that's actually really interesting that you could I mean, you know, the, the gold standard was you sign a PSA and you locked your hedges.

00;42;15;23 - 00;42;37;01
Unknown
Right. In effect, sign the PSA and you just you, you normalize the, the so so yeah. Yeah. Okay. So yeah I could see that I mean you know and a lot of midstream companies, you know they'll be signing a, a new customer for example. And they'll like well who's financing the line. Phil. The buyer. The seller. Right. Or.

00;42;37;01 - 00;43;02;24
Unknown
Yeah. The this you know is the is the is the midstream companies selling a ten year contract to somebody financing it or is the purchaser of the oil, having to, you know, buy that. Right. So there's a lot of interesting, you know, use cases that we hope smart people start working on this and coming to us and saying, hey, here's an idea, let's use it for this, let's you for that, you know?

00;43;02;24 - 00;43;30;21
Unknown
Right. So, we're already getting a bunch of them, you know, it's like, for example, you know, why do you have why do you get paid ACH transfer if you're a non op owner like 90 days later with a mysterious price similar like why I don't know. That's just how it's been done for 100 years. Right. And mailbox money is mailbox money and no one, you know, unless you're a sophisticated fund, you're not really questioning that.

00;43;30;23 - 00;43;55;14
Unknown
Like when you get it, how much you're getting, what oil price you got it at right now. You can just and we're actually working with a couple, companies who are tokenizing LP interest. They're basically like, you know, taking a typical, you know, AFI or PDP deal, putting them, and selling them via tokens as opposed to sub docs, right?

00;43;55;14 - 00;44;15;24
Unknown
Yeah. And so I had those guys on the, podcast. Oh, yeah. They're great. Yeah. So I mean, they're one of the few and the first guys and they're doing great. And, they're going to give their investors, well, do you want dollar stablecoins or do you want oil stablecoins? You just let me know. The first of the month.

00;44;15;26 - 00;44;32;29
Unknown
Yeah. No, that's pretty cool. And and that's never been done before. Like you've never been able to make that choice. Yeah. It's like we call it like digital taking time. Right? Right. And so, you know, we'll see. I mean, a lot of God knows I don't want any of my former CEOs to have that because they would have taken everything.

00;44;32;29 - 00;45;07;24
Unknown
And oil based stablecoins, they were all, well, I mean, it's it doesn't it's no skin off your back at that point. Right? You just convert it to do you convert your oil payments to, to to coins as opposed to dollars. Right. Yeah. So, you know, so we'll see. I mean, I would see a, you know, in the, in the future, you know, you can stick a, a, a, a meter or you can stick a, a computer attached to the skater system or the meter on a well, and you can literally mint coins at that computer and send them to all your investors, right?

00;45;07;24 - 00;45;32;19
Unknown
Yeah. The same day. So you could be like looking at your phone and be like, well, it's got 19 WTI for the production today at you know well ABCc right. That's never been done before either. So I mean I've I've got a whole we could get we could do another whole hour on if we settled everything immediately. I think you'd suck 20% of the cost out of the system.

00;45;32;19 - 00;45;59;25
Unknown
I mean the amount you have to post and margin, the fact it takes you. Yeah. 90 days to close your books and get paid and. Yeah. No, it's there's a lot of inefficiency there. Yeah. Been it was. Yeah. So you you want to hear from folks that want to buy these oil backed stablecoins. And then the other side of the trade, who are those type of folks that you want to hear from.

00;45;59;25 - 00;46;22;08
Unknown
So oil you know, anyone who has any substantial amount of inventory, right. If you've got 20 barrels of inventory, gives your pipe right to a midstream provider. That's you're probably not the guy, but you've got, you know, you have, you have permanent, you know, semi-permanent inventory in your system somewhere. You want to unlock value. Talk to us.

00;46;22;14 - 00;46;49;19
Unknown
Right. Gotcha. And so we we would like, you know, we're talking to big guys, small guys, medium guys. I think, you know, we also would like this to be Texas and US centric. Right. And so, you know, the as damn well everything should be. Yeah. Exactly. So, you know, I think the, you know, there's a lot of, countries in the Gulf that are trying to do things kind of similar.

00;46;49;20 - 00;47;20;24
Unknown
Right. And so we love the world wide standard for how this whole thing gets documented, how it gets substantiated to be like American built and, and then they can follow us as opposed to, you know, the Bahrainis coming here and be like, would you like to sell me your oil under here's, you know, whatever it is. Right. So, but yeah, anyone, you know, the, the, I think eventually folks are going to realize that, you know, creating a bankable oil brings capital to the industry.

00;47;20;27 - 00;47;41;22
Unknown
And so we'll get the smaller guys, the mid-sized guys, they they they need the money or they, they need the money at cheaper rates or they've got higher cost of capital. I think the bigger guys are going to realize this is going to this is going to create an ecosystem for them that is going to allow them to run their businesses more efficiently.

00;47;41;22 - 00;48;08;24
Unknown
And also, you know, make their oil like the gold standard for the world, right? Right. And, you know, so like just like stablecoins, right? People want U.S. treasuries. They don't want Canadian treasuries, right? Right. They want U.S. treasuries. Right. And they and the guy Nigeria who needs oil, who needs dollars to like, buy bread, he's using U.S. treasuries effectively to make that transaction.

00;48;08;26 - 00;48;34;23
Unknown
Same thing. The guy in Australia who wants to go long oil like the best product for him is going to be WTI coin, right? Not you, not euro coin, not you know human like coin. Right. It's going to be WTI. Right. And so there. And so that will effectively be like the de facto marker for oil as a store value going right.

00;48;34;24 - 00;49;00;06
Unknown
Right. And so so that's you know, so that's where we are. We're still early days. Cool. Very cool. So how do people reach you? Yeah, we got a website. Energy substantiation.com. Like it's it's super catchy name, but we'll work on branding later. Yeah. And, and, you know, reach out to me. You know, Moebius, they know where I'm, you know, where I sit as well.

00;49;00;06 - 00;49;22;11
Unknown
And, I kind of go between here and the West Coast, which is where a lot of the dev team is out there. So, Gotcha. And, Yeah, I mean, love to. You know, what's been great is you know, we've had a lot of people share experience in this business, like kick the tires really hard. Like, lot of red lines, a lot of, like, push back on little things here and there.

00;49;22;11 - 00;49;44;08
Unknown
And that's, you know, I went deep at lunch the other day. Yeah. I mean, I feel like I grilled Jim pretty good. Yeah. And and I'm in the process of getting grilled by everybody. Right. Distribution partners, you know, investors, oil companies. Like I am literally and sort of diligence compliance, response mode. And it's fun. I mean, it's a new thing, right?

00;49;44;08 - 00;50;02;09
Unknown
It's sort of like when I was, you know, Credit Suisse in the 90s, like an ISDa was a crazy thing to get people to sign. Right? It was like, what the hell is this? Right? And everybody had, you know, everybody had like their view on it and this and then the other. And now it's pretty standard. Right?

00;50;02;09 - 00;50;27;12
Unknown
So that's I think the the adoption curve is going to be kind of similar but cool. So we'll appreciate you coming on. Cool stuff. Well thanks Jack. It's been great. Great hanging with you man. And hope to hope to continue the discussion. So yeah. Come on Susan. California. Any you any anytime you want to get rid of energy substantiation and use true tracker, give it to you for a dollar you already gave me.

00;50;27;12 - 00;50;43;00
Unknown
If you already gave me a barrel oil. Wow. Yeah. The names, jaws. Any you want. I know you sent me this one. It was cool. I looked at that was. That was, that was super deep, but but, Yeah. Anyway, that's been, you know, keep keep up the good work and then good hang with you. You too.