| Why Me? | | | | to strike black gold. Now, it must be sold. Raw |
| Are you looking to join J.R. Ewing down at the | | | | hydrocarbons are commodity products - meaning you'll |
| Petroleum Club? Or, maybe you're simply looking for | | | | sell yours at exactly what the market will bear - no |
| an outsized return to make up for past hiccups. With oil | | | | more, no less. As with all commodities, numerous |
| hovering over $125 per barrel, more drilling prospects | | | | factors go into determining their value, all of which you |
| will be looking for funding. If you're known about town | | | | have no control over. The simple thing to remember is |
| as an investor, you'll be seeing them more and more. If | | | | that you (nor the company operating your well) have |
| you're considering jumping in, read on for further | | | | any meaningful influence on the price at which you sell |
| understanding of the risks (and rewards!?) | | | | your product. Reasoned forecasts are the best you |
| "Why did this deal come my way"? This is an | | | | can do unless a price hedge has been put in place. |
| overriding question of primary importance. It speaks to | | | | The "You" Risk Are you able to manage yourself? A |
| a poignant underlying issue regarding any capital | | | | drilling project often demands decisions from you along |
| intensive project - the issue of matching appropriate | | | | the way. For instance: Do you agree to set casing on |
| capital with the venture. Appropriate capital comes | | | | the well? This is usually the first and most fundamental |
| from investors educated in the art of the proposed | | | | of questions. You are making a call as to the |
| deal who understand the legal and technical issues at | | | | estimated productivity of the well - electing either to |
| play, and are able to evaluate the risks properly, AND | | | | continue spending more money to complete the well, |
| who can afford total loss of capital. Make no mistake | | | | or declaring it a duster. Other possible emotional strains |
| about it, drilling oil wells is an extremely risky proposition | | | | can come in the form of decisions about going |
| - not for the faint of heart. "Oil men go to Vegas to | | | | forward in light of lost items in the hole requiring |
| calm their nerves" is no overstatement. Thus, while | | | | expensive "fishing" procedures, or "squeeze" jobs to |
| there are a handful of legitimate answers to this | | | | cut off unwanted water, or long waits for pipeline |
| question, one should always make peace with why a | | | | hookups, or... - you get the picture. Bottom line - go in |
| project demanding highly engineered analysis - | | | | with your eyes open. Be sure you understand the |
| technical, economic, geological, and mechanical - is | | | | scope of decisions you may have to make. |
| looking to the man on the street for money. | | | | People Risk Simply put, this should rank first in line of |
| Sometimes, it's because industry experienced people | | | | the judgment calls one must make. Not enough ink can |
| don't see it as an attractive proposition. Thus it finds its | | | | cover the topic of confirming the honesty, integrity, |
| way to the country club crowd, seeking takers who | | | | professional ability, and history of the people involved in |
| may not evaluate the risks properly. In fairness, the | | | | the deal. Is the proposed operator of the well an |
| answer may simply be that one has ample capital to | | | | experienced operator; has he operated in the area; is |
| allocate to risky ventures, and as such, oil deals fit the | | | | there extraordinary environmental exposure; is the |
| bill. If so, so be it. One can get very well, very quickly in | | | | company financially sound; is proper insurance in |
| a soundly executed play (oilfield lingo for drilling | | | | place? Is he putting hard cash in the project? You've |
| projects). So, having considered both sides of the coin, | | | | got plenty of additional risks ahead. The last thing you |
| lets look over some of the risks. | | | | need are questionable characters at the helm. |
| Price Risk OK, let's say you've been fortunate enough | | | | |