| Investors always want to know what the odds | | | | avoid. |
| of losing their capital will be. Investors | | | | |
| want to know when they will begin making | | | | The deal is of paramount importance of |
| money after sending funds to participate in | | | | course, but how it's structured to provide |
| any investment offering. This is the | | | | you with upside, while minimizing downside, |
| development time risk. Three, Investors want | | | | providing diversificiation, and being |
| to know how good the profit structure is, or | | | | achievable at the same time, and in a |
| more specifically, how much money will they | | | | reasonable period of time is still a |
| make during the life of the investment? I | | | | significant challenge...the premise of any |
| would add a fourth and fifth concern which | | | | oil & gas deal has to be supportable with |
| would be what tax write-offs are there, and | | | | good history, logic, geology, engineering, |
| finally, what liquidity is there going to be | | | | and just plain has to make good sense, for |
| in the investment, or in other words...what's | | | | both area and the time. |
| the exit strategy, if any? | | | | |
| | | | Some oil & gas drilling, and developmental |
| Risk is of primary concern to anyone who is | | | | areas in the US are intrinsically very risky |
| expecting to make money, and the deciding of | | | | for example...the Gulf Coast is one such |
| who with, and where to invest hard earned | | | | area, and it's where the faint of heart |
| money are the key questions. Upside, | | | | should not venture...costs are extremely |
| downside, and everything else in between are | | | | high, as are the technical risks of failure, |
| all factors when an intelligent investor | | | | of which there are many. The statistical |
| analyses any investment, and determines how | | | | track record for most participants in the |
| much, or little to choose to invest. There | | | | Gulf Coast area is less than a 50% hit rate |
| are many types of risk...I would like to list | | | | of completing commercial wells, even when |
| some of them based on my own experience, | | | | finding recoverable reserves. Competition in |
| considerable research done during the past 24 | | | | the Gulf Coast areas is brutal, and the big |
| years, and based on some failures I've also | | | | boys control the lay of the land...you've all |
| had over the years. | | | | heard of the expression, 'my way, or the |
| | | | hi-way'? |
| There is a people risk...finding the right | | | | |
| people is absolutely essential, in fact I | | | | Previously drilled and developed older areas |
| believe this to be the single most important | | | | which have historically produced many |
| requirement before doing any business with | | | | millions of barrels of oil in the past, and |
| anyone...bad people screw-up great deals. | | | | are still doing so right now. These areas are |
| Finding trained, experienced, and highly | | | | being re-visited by large independents, and |
| motivated professionals who don't quit until | | | | the majors, because they often have much less |
| the job is done right, and in a reasonable | | | | risk than new exploratory offshore areas. |
| period of time can be difficult. People who | | | | Wells can be placed into production for far |
| can work together while finding the crews, | | | | less money, and much quicker than the big new |
| and equipment you need to develop the leases, | | | | fields being discovered elsewhere. Many of |
| and fields you have so carefully selected, is | | | | these older fields may not have such exciting |
| not easy. It can make or break-you. | | | | upside, however higher prices in oil and gas |
| Relationships based on years of working | | | | now support the return to some of these areas |
| together is your best insurance of getting | | | | even though they have been depleted of their |
| the necessary, and correctly accomplished | | | | primary recoverable reserves of oil & gas. |
| development work you need done in timely | | | | Secondary drilling and recovery methods can |
| fashion. | | | | rival, and exceed the outcomes relative to |
| | | | both rates of return, and upside you might |
| Track records are important, but hard to | | | | get in the Gulf Coast states, or with |
| quantify in oil & gas, simply because like | | | | offshore drilling programs. Actually, since |
| the movies, you are only as good as your last | | | | the late 70's most of the middle east oil |
| picture show. Well meaning, and extremely | | | | fields are in secondary recovery, and are |
| competent professional people, working with | | | | being water flooded, which is the principal |
| great teams, and putting a great deal | | | | means of recovering the last remaining |
| together can lose, or not succeed with every | | | | reserves in place in an oil field. |
| endeavor, irregardless of their desire to do | | | | |
| well, or regardless of their wonderful | | | | Finally, there is the price risk, or |
| technical abilities and experience. It's | | | | volatility risk...oil & gas prices are high, |
| always really important to keep this in | | | | particularly oil prices, which are going-up |
| mind...however, working with incompetent | | | | in the foreseeable future, or within the time |
| people, or people who don't know how to get | | | | lines we are investing, and developing new |
| the job done right, or regularly finish what | | | | oil & gas projects being planned during the |
| they start isn't an acceptable outcome. You | | | | next ten years...there will be alternate |
| need to avoid these often fairly confident | | | | energy sources, and conservation efforts, but |
| sounding people when you first begin talking | | | | demand will be greater than supply |
| with them, and there are some excellant clues | | | | capabilities based on my research. |
| to look for when trying to decide who to | | | | |