You Want In On Ground Level…..Let’s Drill An Oil Well
Direct participation in drilling oil and gas wells can certainly be a lucrative opportunity, however it’s important to understand this is not an investment opportunity for the faint of heart, and should not even be considered if your homework has not been done. This side of petroleum investing is by far one of the riskiest, but if all goes well it could also change your life financially forever.
Erring to the side of caution when approached with an investment opportunity such as this, it’s important to be sure you have all the facts. On projects of this nature a highly engineered analysis of the area and project as a whole is required. Technical, economic, geological, and mechanical aspects have to be studied. Copies of all ground work analysis should be provided upon request, prior to any money changing hands.
Why Private Investors?
Often companies who are seeking capital vestments outside of the industry, it’s almost always a given that the deal being considered is too risky. It’s crucial you know who it is you are dealing with. Are they honest? Do they have integrity? How about their track record… have they ever done this before? Are they capable? Do they have the resources and the man power to be able to complete this job? Have they got proper insurance, experienced operators, and are they using hard cash? All of these are very important things to consider if you are looking to do this kind of investment.
Be Aware of Other Risks.
When you are an oil well, you drill deep into the Earth thousands of feet, cementing steel casings into the bored hole, and then outfitting the hole so you can get that black crude up to the surface… it can all be very costly. Each step involved is critical and if mistakes are made it can become very costly, very quick. To commit to this kind of investment means you are relying on those you are dealing with and their ability to actually pull it off.
Are Your Recoverable Reserves Risky?
There is a secondary risk involved when you are counting on the size of the located reservoir. A well, no matter how well built, can produce only produce the amount of oil that the reservoir has. Recoverable reserves vary greatly. If the operator studied the seismic evaluations, the area’s historical production, the well’s control and they guessed right your payouts could be as little as 5 to 1 or as great as 20 to 1. Makes Vegas look like chump change.
Let’s assume your well has indeed found oil, the next product will be to get your product sold. The cost your product is sold for will not be negotiable. Your product will be sold for the cost the market is currently bearing, period. Your profitability on this sale is also out of your hands and will not be influenced by you either.
Don’t Forget to Read the Fine Print.
You should always go into any investment opportunity with your eyes wide open. Know the factors that you will be up against and understand the scope of your commitment. Be realistic in your expectations and don’t forget to read all of your operating agreement. This document will spell out your share of the profits and how it is you will be paid. What overhead and management costs will you be expected to share in? Will the net revenue interest and the working interest be what you expected? Keep in mind all paying partners will be responsible for their share of the royalties paid to the Landowner monthly.
If it were easy, and the risks few we’d all be wearing lovely Stetsons and laughing all the way to the bank. For a select few who can afford the gamble and have the resources to invest with a reputable operator for the long haul, typically 3-5 years, the end result could be millions.