Oil & Gas 102: Trellis Energy’s Approach to Reducing Risk in Oil and Gas Investments
I sat down with Braden Hudson, CFO and cofounder of Trellis Energy, to talk about an oil and gas investment opportunity. Trellis isn’t your typical operator—they specialize in fractional ownership of wells alongside major names like Chevron and EOG, giving accredited investors direct access to proven energy projects.
With a focus on downside risk, diversified deals, and strong tax benefits, their fund offers an alternative growth platform outside traditional markets. If you’re looking to diversify your portfolio and tap into energy investments in a smarter way, this episode is a must-listen!
Key takeaways:
Diversification Through Non-Operated Interests: Trellis Energy provides fractional ownership in oil and gas wells across top-tier U.S. operators, which spreads risk across different projects, regions, and commodities. This isn’t about chasing 10x returns—it's about steady capital appreciation with a strong downside risk focus.
Distinct Growth Platform Model: Trellis doesn’t operate the wells themselves—instead, they invest alongside proven, reputable operators (think Chevron, EOG, Oxy) in projects too small for major institutional players, but out of reach for most individuals. This model enables earlier cash flow recycling and tailored exit timing, seeking 15–20 projects per fund lifecycle.
Investor Alignment & Tax Efficiency: With an 8% preferred return and significant personal capital invested, Trellis aligns its interests with investors. Plus, 70–85% of capital may be deductible in year one, depending on structure—adding another layer of efficiency for portfolio strategy.
Curious how private energy investing could fit your portfolio—either for tax planning, diversification, or long-term growth? Check out the full episode or let’s connect!
Links:
Contact Brayden Hudson with Trellis Energy Partners - https://trellisep.com/
Take the quiz - How Alternative Assets Can Fit in Your Portfolio
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Introduction to the Unconventional Investor Podcast
Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.
Let's head into today's episode so you can start taking control of your financial future.
Introducing Today's Topic: Trellis Energy's Oil and Gas Investment
Hello everyone and thank you so much for tuning in. Today we are going to be talking about an oil and gas investment from Trellis Energy. They have a private placement that we are going to be talking about and to talk about that I have Braden Hudson here.
You wanna say Hi Braden. Hi everyone. Thanks for having me. Thanks Michelle for setting this up. Look forward to the chat. Yeah, me too.
Meet Braden Hudson: Co-Founder and CFO of Trellis Energy
So Braden is a licensed CPA and has over 13 years of oil and gas experience. He is a Heart Energy 40 under four 40 award recipient, and he is the co-founder and CFO of Trellis Energy.
And thank you so much again for being on. All right, so let's get started here. I wanna talk about so we met at a conference and I have been reviewing Trellis energies, all of their documents and due diligence reports and everything, and I thought they, it would be nice to have them on because in the oil and gas sphere.
There are a lot of the tried and true guys that have been around for years and they are structured in a certain way and Trellis seems to be trying to do something different, which is why I wanted to have you on. So would you like to give us a overview of what tr, what your private placement is and what you're raising money for?
Overview of Trellis Energy's Private Placement
Sure. Trellis Energy, as you mentioned is in the oil and gas space. So we predominantly focus in the upstream, which is. Just the development to oil and gas wells actually drilling and completing fracking, all those terms that y'all have heard. But we do it from just a slightly different perspective in the sense of we're a non-operated along gas sponsor, and so we don't actually, we're not the ones out there actually drilling the wells.
Scheduling time and employees, et cetera. We don't have all the field ops. Effectively, what we're doing is taking a fractional ownership in each of these development projects.
Investment Strategy and Diversification
we do that across really any and all areas across the us We took, we haven't touched international development yet, but I don't suppose that won't happen someday.
But what that does is really we're a growth platform, so we're looking to recycle cash flows from projects as they come in. So we'll deploy, as capital over two to three years. It'll be all focused on, or I guess spent over, probably 15 to different 20 different projects that'll be spread across the us.
It'll be spread across different commodities. Gonna be spread across different operators in ultimately different areas. And so what that does is provides a diversified platform. So our goal really we're not gonna have maybe the huge 10 x types results that maybe some of these other people try to tell.
What we're really looking to do is to limit the downside and control the environment so that way, especially in this space. For individual investors that, are actually providing a capital appreciation to them even in kind of market such as today, maybe that's a little volatile. And so we're looking to raise 25 million minimum investments.
50,000. We are a 5 0 6 C, so credit investors only. But that allows us really to talk to anybody and everybody. And then as I mentioned, we're looking to, capital will be deployed over the first two to three years. So we are a growth platform. Most projects in oil and gas pay out in less than probably two to three years.
And so we're looking for projects that pay out in less than 18 months, so that way we can start recycling cash flows. And provide that growth platform for your clients and other clients out there.
Recycling Cash Flows and Exit Strategy
And in your in your fund that you're talking about recycling cash. When do you decide to stop recycling it and then give it back to the investors?
Is there any sort of tests that you have or is it just gonna be time? It's not necessarily a a quantitative test or anything specific per se. We do have written into the PPM that we will start making distributions after year three at a minimum. And so it's possible we start making distributions sooner than that.
But it's all gonna be based on current market environment current, that's both m and a dynamics, both just general market sentiment et cetera. And depending on how the funds. Going depending on the type of really project flow that's coming at us.
And so if it's maybe a dead time, then maybe that's probably the right time. The other side of that too is the exit. And so we are looking to exit these assets over the course of probably a year. Four to seven is ideal. And so again, everything I just said on from a buying perspective is flipped to the other side on a sell side.
And so if we get to year four, maybe we stopped recycling projects because it's the right time to sell and to, and exit the investment. So both of those things are running in tandem. And we're looking at the market to make sure that, we're hitting both of those at the right time.
And would you be able to sell, so you are, you're invested in. Oh a is that what I should just say? Okay. So you're just invested in this and it is producing, and could you exit it? Are you saying you would exit it by selling it to someone else or that the operator would let you out?
Like how would you exit? Yeah, so predominantly it would be a sale. And so we're gonna, we have, several different groups out there. In the public space you've got groups like Northern Oil and Gas, or NOG, there's a betas. There's also a bigger group called Risa, and so these are big multi-billion dollar enterprises that are looking for larger packages.
And so what we're doing is we're taking kind of some of these smaller projects that are anywhere from 500,000 to $5 million at any given space and aggregating that to a point where hopefully it's worth. Maybe nine figures or more, et cetera. And so then that all of a sudden those players type start to come into play.
And so then you would sell it all as one, is what kind of what you're thinking. Okay. Yeah. The idea would be to sell it all as one. Although we've, in prior iterations of this and it things, it's been outside of kind of this fundraising environment within, RAs and individual broker dealers.
We've sold it in multiple troches. So again, looking at who's the buyer what are the market dynamics? That could be regional, that could be United States, it could be geopolitical, right? And so there's just so many different factors that come into that We're constantly evaluating, so that way we don't miss in a certain timeframe.
And so when you're talking, so it, you did touch upon this about the 500,000 to 5 million. Is that why you have this sweet spot and why you're starting this fund is because you. Are able to deploy capital in those increments and other people are, don't even wanna look at those deals. That's correct.
There is a large set of non-operated players. I used to become more competitive. I like to think that my co-founder, Jake Bailey started the movement back in 20 17, 20 18, and then you've seen a lot more activity in this space. But what you're gonna find is any industry, the more longstanding relationships, the more times you can treat people right and be effective in clothing assets, selling assets, et cetera, stuff like that.
That those are the, be the groups that. Withstand any sort of competitive dynamics within kind of people entering in the space. But yeah there is a market for, a hundred million dollar deals. You got some of those that are looking at billion dollar deals and then you've got, like I said, some very small, and so we fit into a space.
Where you've got groups. In fact, we just closed the deal into this fund. I could, it's been two months ago now. Whereas an individual who was being asked, there's some new wells is being asked to fund roughly $5 million of capital. This is an individual, I don't know how many individuals out there necessarily have $5 million just sitting on the side waiting to put into projects, but particularly an individual didn't.
And so we stepped in, purchased as assets, and now we're gonna participate in that 5 million going forward. And so you have a lot of that where on the smaller scale you start to get into smaller groups who are saying, yeah, we play in the, a hundred to million dollar space. We play in the million to $10 million space we play in the 50 to 150 million.
And you just got these different chunks. And so we're on the smaller end. And like you said, I do think that allows us to fit a niche that. There are other players, but I think that we do pretty successfully. Okay.
Understanding Non-Operated Ownership in Oil and Gas
And then could you go in more into explaining what a non, you said non-owner operator, is that, am I using the right terms?
Yes. What that means to just like a regular person. Is there a way to explain that so that they could understand it or make it like someone something else? Do a, what am I trying to say? Make it. The same as like a story, right? Yeah. So I think you similar in maybe think of it as like a real estate.
Somebody buys a building more often than not that individual's not gonna actually run the building. But sometimes they do. So sometimes you got an individual who buys a building, leases it out, manages it, does all the maintenance, et cetera. Of course that individual may not be able to purchase the whole.
Building. And so they look for other investors to come alongside them. And so that's where we fit. We're just taking fractional ownership and then they are the ones effectively. Buying the building, we're taking partial ownership of that. And then they're the ones, being the property managers and taking care of all the decisions and all the maintenance, and of course the drilling completions up front.
But then everything there out. So we're literally, the hardest thing we do is get a check in the mail and make sure it's classified in the right way, and get a invoice in the mail and make sure it's, put in the right spot. Of course, there's. Certain things that we do within that communications with those people who are managing the properties, making sure they're doing it right.
There's a lot of forecasting and under and backward looking cashflow analysis to make sure that we're getting charged appropriately and they're running the assets appropriately, but effectively they are, in charge. Okay. And so obviously then you are investing with operators that you have a history with.
We already covered this. And so you trust them or, you're wanting to really get into that area or it's just, a sound investment. And so you're, so is there a goal for how many different investments that you're going for in this fund? Like what's your forecast with that?
Yeah. So it's hard to pin it down exactly, but like I said, we're raising 25 million and because of the recycled cash flows, it probably means we're gonna spend somewhere between 40 to $50 million of capital dollars CapEx. Which, again, if you go back to the 500,000 to 5 million probably means we're going to be doing somewhere between 15 to 20 individual projects.
And one thing I wanna touch on, you mentioned it. A little bit, just briefly, there was, we are looking to participate behind or alongside operators who really know what they're doing. And EOG, Chevron, Oxy some big names out in the public space and in the private space.
And we always joke that we do a lot of our analysis based on ology and not geology. We look at wells that are right around, we look at the operator in that area. And if we get too far down the rabbit hole of trying to make sure that the geologic formation works versus the success rates around the area, then we've gotten probably too risky.
And again, that's why I, I say that we're somewhat limiting. Or bracketing the upside to some degree because we're not out there doing super prospective areas. But also extremely limiting the downside because we're behind very successful operators and proven areas. That make sense. And I thought that's what was so interesting when we were talking, is that you said we're investing with companies that you've mostly heard of, that most everyday people have heard of.
It's not just. Some fly by night or somebody that's just trying to get started. I think that is a source of comfort. And I think it's important because they have to have the capital to ride the ups and downs of whatever is happening in the oil and gas industry. Okay, so what, so the time horizon for your fund is five to seven years.
That's right. Is that right? Okay. And then is there any sort of preferred return structure, distribution, waterfall or anything like that in your fund? Yep. The day one investors come in there's an 8% preferred return that's compounding annually. So again, that starts day one. And then after the eight percent's returned whatever point in time that is there will be an 80 20.
Split. Okay. So 80 to the investor is 20% to management. Okay. So pretty normal. You guys, this is that's pretty standard in funds is the eight, seven to 8%, and then the 80 20 split after all of your capital has been returned and your preferred return has been returned to you. And so are, can, is there any specific way that this investment might fit into an investor's?
Market Dynamics and Investor Benefits
Strategy that you would recommend or is it a pure income or growth play or anything like that? That's right. So I'd say probably a couple different things to that. First I'll go touch maybe more on the market dynamic side of it. And then the second I'd touch to more yeah, as an individual investor, how this would fit.
But from the market perspective, as we talked about, we're investing alongside or behind these proven and successful operators. And those operators, especially from a public company perspective, are obviously a lot more correlated to the markets or volatile towards what happens in the market sentiment commodity prices and et cetera.
And so there's a lot of factors that kind of go into, but we're doing is we're providing these same results that these guys get except, it's not bled through all of those lenses. And so what I would say is. We typically end up performing a lot better and higher commodity prices than like what a public equity stock might do.
But also we're not as volatile as prices go down because again, we're not dealing with market sentiment and so we tend to correlate a lot better in those scenarios. For an investor, again, where you're bracketing the downside, but also being able to participate in the upside, and we do that predominantly through.
Edging. And so effectively what we're saying is we're locking in prior future prices. On projects that we invest in, so that way we know what our returns will be on that project. We could spin a whole podcast episode, probably two or three on how we look at that. But just know that we're trying to walk in as much as we can along the way.
Tax Benefits and Investment Structure
And then from an individual investor perspective we're not a true or pure drilling fund. And so they're, not maybe the same. I mean there are the same tax deductions as what you would get in a drilling fund. So I would tell investors that, hey, if you're looking for energy exposure, I would pull out of your public equity stocks, put it into private investments.
'cause we are getting the direct at the well returns versus, through the market. Of course that provides the tax benefits. And so typically 70. Percent of 85% of all capital deployed is deducted year one. The remainder is can be, deducted through bonus depreciation and or over time.
So you're getting those deductions right away, and we're promising that 50% of your investment over those first 24 months will be deducted. So that could be a tool from a tax perspective. And then really predominantly what we're focusing on is bringing a private equity type growth model to this space.
And so typical drilling funds or even just kind of other funds in this space, I feel are driving so hard tax. That they're foregoing maybe some. Higher returns. And so we typically, I shouldn't say typically, we really don't look at returns from a tax perspective. We want good gross returns and that were a result, of course, in good net.
Tax returns. And so if a project doesn't make sense. On a whole, we're not gonna invest in it just because the tax benefits might be there. Again, I think that's smart in life anyway. That's smart for any investment. Yeah. Yeah. I just, I understand in this space that it is convenient to Yeah.
It's fall into the whole tax when you've got, you've got a lot of tax bill coming due. It's a great option and we're, we can still provide that. It's just gonna come in differently. And so within that time horizon. We're investing for the first three years, like I mentioned, during that timeframe, we should be generating a net tax loss to the investors because of the tax deductions and the capital that we're deploying.
And then as things move across, your forearm we're making distributions, hopefully some of those are going against your tax basis, so you're not necessarily paying taxes, but there will start to be income generated and that's when we would exit the asset, convert all that future income. From ordinary income, from a taxable perspective to capital gains.
And so again, really it, this isn't, it could be income and growth, it's predominantly growth thinking through a private equity type approach, just saying, Hey, I'm giving you more privatized access returns to these public operators. And of course private operators from a private operator perspective that an individual investor would never have access.
And I think it's important to, to point out you guys when he's talking about, so that if you sell your equities that you were already owning in, let's say, Chevron. You're not gonna make as much on your dividends. It pro and who knows what the stock price is doing, but because you're not, because Chevron is making the same amount that Trellis is because they are a co-owner with them.
And because Chevron has all of these people to pay and, tax people and everything that they need to do to be a public corporation, you're not going to get as much. Whereas Trellis is very. Small, you guys have a handful of employees, and so a lot of that is passed on to the investor. And so you're basically getting like direct access to the co-ownership of these wells to the drilling.
And it doesn't have as many people to, funnel through essentially. Am I explaining that? Yeah. Do I understand? No. Okay. That's, yeah. Okay, great. I just wanna make sure I understand it right. Because that's one of my, I try to always just put it in a way, that you can like, see it in your mind yeah.
And that's why I think you guys are unique because you are investing right alongside of Chevron and most of the time in oil and gas, which. See is they need capital for the actual equipment. They need, you're going to buy the land to do own the mineral rights. You're going to actually be, paying money so that they can drill.
All of these are very capital intensive. And so that's normally what from a fund. Whereas with Trellis it's a little bit different. Whereas you are going to in as a co-owner and you're, buying part of, you could look at it is what his. Ex explanation was, is a building, but really you're co-owning part of that drilling operation.
Yep. Yes. Yeah. No, that's all great. Okay. All right. Good. Let me know if I'm messing up anything, if I should be saying something else. Okay. No, that's perfect. Okay, wonderful. And so one of my questions that I always ask is, do you guys the managers, do you guys have your own capital invested in the fund also?
Yes. Yeah. So we as of now we've got I guess roughly 20% of the fund of in our own capital. Okay. And so we're, this is good. I think in order to make this work, we have to because of the way that projects stack on top of each other, you're gonna see production do this, right?
And so we're in that phase right now where we're starting to pile different projects into there, which requires funding upfront prior to our full fundraise. And so we are, funding that portion of it, and most likely that'll all stay in. And so our, the PPM says we're required a million of the 25, but it ended up being.
Much more than that at the end of the day. Okay. All right. That's good because one of my litmus tests for any fund is making sure that the sponsors that your interests are aligned with the investors' interests. And I like to have the money in and not just as a loan, like your money is actually in the fund.
Am I missing anything? I don't, am I missing anything huge that makes your. Funds stand out from the others because I feel like we've given kind of a brief overview of people that would be able to then ask for some more information. Again, this is open to accredited investors and the minimum is $50,000.
You can you use IRA money? You can use IRA money. Of course, some of the tax benefits that we mentioned will. Not be applicable in those scenario. So if you want the tax benefits, you guys, you obviously have to have you need to just put in cash. But I have, there are people that wanna put it in their Roth IRA because you want to grow that as, as big as you can by the time you're retired so that you can then have tax free income when you go into retirement.
So I also see that as a benefit too. So I, I do applaud what you're doing. I think that it. Is giving access to people, that they normally wouldn't have access to something. I wish you luck and I'm really glad that you were on the show.
Conclusion and Contact Information
Definitely. I appreciate you having me.
Yes, this has been great. Yeah. Let us know if you have any questions. You guys, I'm gonna have Braden's and Trellis information so that you can check out their website in the show notes. And you can always call me if you have any other questions and then we can talk about your situation. So thank you so much for listening.
Thank you again for being on and let me know if you have any questions. You guys have a great day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.
Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.