OIL AND GAS MANAGEMENT

Oil And Gas Management

Oil and Gas Management

Project Proposal

It's not uncommon for oil or natural gas drilling proposals to end up on the desk of non industry laymen. Direct participation can be lucrative, but caution is the watchword when entering the world of drilling oil and gas wells. This article explains how to be wise in this arena. If you're considering participating in drilling a well, read on for further understanding of the risks (and rewards)!?

"Why did this deal come my way?"

"Why did this deal come my way?" This is a question of primary importance. It speaks to a significant underlying issue regarding any capital intensive project - the issue of matching appropriate capital with the venture. Appropriate capital comes from investors educated in the art of the deal who understand the legal and technical issues at play, and are able to evaluate the risks properly, AND who can afford total loss of capital. Make no mistake about it; drilling oil and natural gas wells is an extremely risky proposition - not for the faint of heart. "Oil men go to Vegas to calm their nerves" is no overstatement.

Thus, while there are a handful of legitimate answers to this question, one should always make peace with why a project demanding highly engineered analysis - technical, economic, geological, and mechanical - is looking to the man on the street for money. Sometimes, it's because industry experienced people don't see it as an attractive proposition. Thus it finds its way to the country club crowd, seeking takers who may not evaluate the risks with rigor. In fairness, the answer may simply be that one has ample capital to allocate to riskier ventures, and as such, oil deals fit the bill. If so, so be it. One can get very well, very quickly in a soundly executed play (oilfield lingo for drilling projects). So, having considered both sides of the coin, let's look over some of the risks.

People Risk

Simply put, this should rank first in line of the judgment calls one must make. Not enough ink can cover the topic of confirming the honesty, integrity, professional ability, and history of the people managing the deal. Is the proposed operator of the well an experienced operator; has he operated in the area; is there extraordinary environmental exposure; is the company financially sound; is proper insurance in place? Is he putting hard cash in the project? You've got plenty of additional risks ahead. The last thing you need are questionable characters at the helm.

Mechanical Risk

Drilling a hole in the earth thousands of feet deep, cementing steel casing in it, perforating it precisely in the right spot (err. not where the salt water is), and outfitting it to bring that precious hydrocarbon to the surface is no walk in the park. Sure it's done every day, but often with expensive hiccups along the way. A poor cementing job can allow channeling of oil, natural gas or water behind the ...