Should I invest in an oil or gas drilling program?
Be prepared to potentially lose your investment
You should not invest in an oil prospect if you cannot tolerate losing your investment both financially and mentally. Although we have an excellent track record and developmental wells are much safer than wildcats, any well could be a dry hole.
Tax deductions and the completion refund limit your downside
If we have a dry hole, you will receive a completion refund of part of your investment, and the entire invested amount less your refund will be a 100% tax deduction. (In addition, if a well is successful, 15% of the money you make off the well will be tax free.)
Spread the risk – plan on at least two or three projects
You should consider making oil and gas a long-term investment spread out over a number of wells. We suggest when you make your first investment you plan to do three projects to spread your risk. Not every well will hit or be equally productive and by planning to do at least three wells you increase the chances of having a successful oil and gas investment.
How to select an oil or gas prospect to invest in?
In general, you are looking for as much geological control as possible and you want to be updip to production. Geologic control is achieved through subsurface data (other well logs) and seismic data. Being updip means being in a higher spot than the wells you are keying off of with production. You want to be higher because oil and gas will gravitate to the highest point. If it were not caught by a trap it would over time come to the surface. In general, the bigger that the reserves are of a prospect, the less geologic control you have in a prospect and the less certain you are of getting those reserves. In other words, a prospect with bigger upside reserves or flow rates may have a lower expected return when factored together with the risk in the well.
How long until I get a check?
Most of our wells will take about two to three weeks to drill. Once the well is drilled to total depth, it needs to be tested. It is tested with at least a log and often in other ways too. Once the tests are done and the well is determined to be commercial, the well is then completed and put online. This will take a couple more weeks usually. Once the well is flowing, the first revenue checks will go out in about 60 days for any oil produced and about 90 days for gas. Many wells will produce both oil and gas. Oil is collected at the well site in tanks and collected as the tanks fill up, so it is paid on more quickly. Gas flows off into a metered line and is paid 30 days in arrears by the buyer, so it will get paid out a month later than the oil. If your well has both oil and gas, then after 90 days you are receiving revenue from both on a monthly basis.
Will the checks be steady?
Due to daily fluctuations in the amount of oil and/or gas a well produces and due to price fluctuations, checks will vary month to month.
Can I visit the well while it is drilling? (Open door policy)
You are invited to visit our company or a well site. If you come to Houston we would love to meet you. If you come to our office, we will go over a brief history of the company and then explain the drilling process. After that, if we have a well drilling, we may go to the drill site. The tool pusher who is in charge of a shift will often put a hard hat on you and show you around the rig. It is a great opportunity to take pictures and make sense after the briefing in the office of how it all works. Most of our wells are within a few hours by car. Occasionally a well is too far away for a visit; in that case, we are happy to give you directions to get to the well. It is a memorable experience to see your own well drilling.
Is timing important in investing in a well?
Our goal is always for a long lasting well. Wells may last a few years or 20 years or more. Since oil and gas wells can last a long time, it is not as important to try to time your investments to coincide with higher oil and gas prices. Over the years prices will fluctuate quite a bit, but we believe that in general they will tend to trend upwards. In that case, a well that slowly declines may actually pay more monthly in the future than when it starts.
Another thing to consider is that many of our wells have multiple zones. When the first zone that is produced depletes, the second zone could be even better. It is not unusual for the flow rates to be better in a second or third zone than in the original zone.
Of course, although oil as gas wells are long term investments, it may not take a long time to get your original investment back and make a profit if a well is strong.