Startups aren’t supposed to go this well right out of the gates. But two entrepreneurs – ex-TCU Energy Institute associate director John Baum and ex-oil and gas adviser Ryan Vinson – have hit fertile ground with their software that helps mineral owners manage their holdings and keep track of “mailbox money.”
5 M’s Mineral Management – Managed Minerals Means More Money – was throwing off positive cash flow within its first month of being launched in 2014, says Vinson, the 32-year-old former head of oil and gas advisory at Bessemer Trust, who quit his job to help launch the Fort Worth company. The first version of the software manages interests. In April this year, the firm added a revenue module for clients that tracks “how much money they’re making,” Baum says, including identifying missing payments, suspended funds, and deductions that most clients have previously ignored in figuring their taxes.
5 M’s picked up more momentum this spring when Larry Brogdon, a partner in the Four Sevens Oil Co. in Fort Worth, which scored big in the Barnett Shale, came aboard as the company’s first outside investor, bringing his expertise and array of contacts. 5 M’s doesn’t disclose sales, but says it’s grown rapidly in the last year and half, today approaching 100 clients that range from small and medium-sized royalty owners to institutions like hospitals that own interests. The introduction of the revenue module doubled the company’s recurring revenue within three months, Vinson says.
5 M’s, based in small, austere offices in downtown’s Oil & Gas Building, has just signed a lease to move into the nearby Fort Worth Club building, tripling the company’s office space.
“Normally, you don’t get a software product that’s saleable in that period of time,” says Baum, who left his post as associate director of the TCU Energy Institute to launch 5 M’s, an idea he conceived while running classes for mineral rights owners at TCU.
A 5 M’s account holder’s site is built around an interactive map that locates the client’s oil and gas interests.
Easy Market The 5 M’s partners see a clear market for the software in the 12 million mineral owners in the United States, including 1.5 million in Texas. And those numbers are rising, as owners die and their heirs inherit. Mineral owners – not big companies – control about half the $240 billion U.S. oil and gas production in 2015, 5 M’s estimates. Trust companies can require millions of dollars of assets on account, and charge 6-8 percent to manage.
The only software in the market has been aimed toward oil and gas generating companies, and reporting by oil and gas companies is arcane. The result: mineral owners typically sign off on the lease offers they get in the mail and cash the checks that arrive, without questioning the numbers, the 5 M’s principals say. They cite industry estimates that figure mineral and royalty owners typically are underpaid by 15 percent on average.
Enter Baum, 74, a longtime business academic, consultant, and executive. In his latest turn, as associate director of the TCU Energy Institute, Baum, in 2012, created a royalty owner program that has put 1,500 people through so far. Baum, who owns three ranches handed down from family interests, raises cattle and has oil and gas interests on the properties. At TCU, he was hearing from small and medium-sized owners who wanted software that would help them manage their holdings.
But there was none. Small owners have no idea where to begin in getting organized, he says. “Many of these folks don’t even have documents.”
Baum put the papers together to incorporate outside the Energy Institute, but “we needed somebody who had background in land management and software,” he says. That’s when Vinson attended one of the Energy Institute’s programs.
Top of the Market Startup Self-described “fourth-generation oilfield trash,” Vinson was born and reared in Midland. As a child, he remembers asking his father what the pumpjacks were as they drove through the oil patch. “Son, they’re making money,” his dad replied.
Hooked, Vinson worked on a rig, studied petroleum management at Texas Tech, and took a job as an in-house landman for a company in Denver, where he obtained a master’s degree in oil and gas policy studies at the University of Denver. He moved on to Houston and later Los Angeles before moving back to Texas, where he landed at Bessemer Trust.
There, Vinson met the kinds of clients he says needed a more efficient solution to managing their oil and gas assets. “It shocked me there wasn’t a solution,” says Vinson, who attended the TCU program in search of one and met Baum.
Baum, who spent 20 years as an executive at Texas Instruments before he moved to the TCU Energy Institute, wasn’t looking to retire.
In April 2014, Vinson decided to jump fulltime from Bessemer to launch 5 M’s with Baum. “I knew it was a big risk,” he says. As it turned out, it was the top of the market. “I quit Bessemer at $100 a barrel,” he recalls. “$104 and 87 cents to be exact.” By the end of the year, crude was trading about $53 a barrel.
Baum put in $40,000 in startup capital, with no debt, a position the company retains today. Vinson focused on creating the business plan and assembling the team. Baum helped feed clients. His son, Ken Baum, came on board in April 2014 as chief information officer and another colleague, Josh Ellinghaus, came on as IT director. In October that year, the company got 500 resumes when it went out to hire a landman. In November 2014, they launched their MineralWare Management software.
The site shows clients their oil and gas revenue and deductions, and comps for volumes and prices.
One Big Goal: Simplicity The goals were simple: to create an easy-to-use platform that continuously updates itself with new information.
Open it up, and the first thing you see is a map connected to your account. “Being a landman, I really believe in the power of the map,” Vinson says. “You can visually see your assets.” That includes acreage, interests, wells, and well data, all mapped. Inventory is organized by state and county. Documents are organized by asset. Properties are color-coded – one color for leased, another color for ones that aren’t leased.
“You’re not having to jump through multiple sources,” Vinson says. The inventory feature has been a revelation for clients, he says. “None of our clients ever had an inventory. They just got a lease and signed it. We’ve had clients come in with boxes on a dolly.”
The customer’s map also shows wells that are paid and not paid on, and the customer can see why a well isn’t being paid. Reasons can vary, from title issues, to change of address, probate issues, failure to sign a division order setting forth proportional ownership, and data dropped in a sale. Mineral owners, Brogdon says, in many cases “don’t even know what they own.”
The software also identifies and organizes deductions, churning out simple documents mineral owners can take to their CPAs. Mineral owners and CPAs typically ignore the costs, focusing only on the revenue, Brogdon says.
“You have all these costs,” says Brogdon, who – along with the company – declines to say how much ownership he’s taken in 5 M’s or what he invested in it. Mineral owners often dump boxes of check stubs on their CPAs, driving up their costs.
“It’s hard to capture those deductions, because every check stub is different,” Brogdon says. “Go to a CPA, and you’re going to spend a fortune.”
Publicly available data, dumped into the company’s information system, regularly updates customers’ accounts.
The site also has features that make it the oil and gas version of the real estate Multiple Listing Service, containing broad well data including production, average prices paid, formation, and dates of drilling and completion. It collects information on lease terms, including bonuses, and royalty range. Mineral owners can draw on that to determine whether the terms on their deals are fair.
“Behind this, there’s thousands and thousands of pages and documents, and copious amounts of data,” Vinson says. “We’re close to some analytics that can be very valuable.”
5 M’s charges a minimum $100 per month for the service, based on the number of counties that a client needs mapped. For the whole state, the minimum cost is $500 per month. Clients can add other services. 5 M’s can help a client find documents, going online first and, as a last resort, sending people into the courthouse. It’ll review leases on an hourly rate and can help negotiate better terms on a lease.
“We’ve been in the oil and gas business, so usually, we know somebody on the other end of a phone call,” Vinson, whose family has interests in 41 counties, says.
His own family’s management of its oil and gas interests illustrates the problem 5 M’s is confronting, he says. “As leases come in, they sign them. There’s not a whole lot of due diligence.”
5 M’s originally set out to pursue management for big mineral owners but pivoted to focus on small to large mineral owners and institutions such as banks.
“Most of our royalty owners are not oil and gas professionals,” Baum says. “Our software had to be easy to use.”
His father was “pretty good” at managing the family’s interests, Baum says, but “it was mostly mailbox money.” Vinson: “The more assets you have, the harder it is.”
Brogdon himself has become a client. The record-keeping on his interests is simple, he jokes: “I had a filing cabinet. And I was not paying any attention to the deductions. It was mailbox money. It’s embarrassing.”
5 M’S founders Ryan Vinson and John Baum, with investor Larry Brogdon Photo by Julien & Lambert
Growing Fast 5 M’s in August hired another programmer and recently brought on two more landmen. It’s also getting the word out through advertising and attendance at trade shows. The company, so far, has retained 100 percent of its clients, its principals say. It’s in “pretty heavy conversations” with more institutions about managing their holdings, Baum says. The company isn’t looking to raise more money, Vinson says. When Brogdon came along, “we weren’t out actively trying to raise money. We knew we had to raise money. We were growing so fast, we needed an influx of capital to fund our growth. But for us, it had to be the right guy.”
“God has really blessed us,” Baum says. “The typical startup goes through a period where it’s under water a long time. The biggest concern is running out of money. We’ve been able to pay our own way from the beginning.”