03 Nov Fishing Philosophy and Investing in O&G
As a lifelong fisherman from Alaska, I’ve learned 2 basic rules that will help you fill the freezer for the winter.
Rule #1: Go to where the people are
Rule #2: Go to where the people aren’t
Sounds like confusing (if not contradicting) advise, right? Well, here’s how it applies to Oil & Gas Direct Investment…
Rule #1: The reason why this works because in geographical plays, it attracts the most energy and excitement ($$, labor, equipment, etc.). It allows a certain amount of risk reduction (either real or perceived) for the investor knowing that they are not the only ones putting funds into a play. The good thing about this is when the play is “hot”, it benefits all in the space. Once the hedge fund $$ come in and lease prices go up, it becomes more difficult to find programs with solid quick payouts. Gems can still be found…you just have to be a little more patient.
Rule #2: There are a few advantages that going outside of the area pose for the investor. I mentioned a few of these in a previous article (play congruity, Better NRI, potentially better payouts and ROI, etc.) but I want to add a little more to it…
Typically, we like to see Operators think beyond a “one and done” program in these areas. We look for them to secure additional adjacent acreage so if the wells are successful, we can go beyond a “Phase I”. The cheapest time to do to that is when there’s not a parade of landmen waiving blank checks in front of landowner’s faces. If the Phase I wells are producing as expected, not only will you have mailbox money, but many mid-majors and other investment groups will come knocking on the Operator’s door for the Big Buy Out. You now have 2 quick options of making your investment back.
Saying that, we have programs in the Eagleford trend (Rule #1) and in Kansas (Rule #2) for your consideration.
Unlike fishing, you can work both rules at the same time and there’s no bag limit!
October 2021 – Beyond the Spotlight
We all know about the plays that get the most attention.
We hear about them in the news. Either non-conventional or conventional plays that get this attention make it easier for operators to raise funds for exploration and development. Let’s admit, there’s a great feeling of safety for investors if they’ve heard the names of plays like “Permian”, “Bakken”, etc. or even whole states like Texas and Louisiana.
Now, let’s talk about VALUE…
We like our Operators to also consider thinking beyond these “hot” plays for a variety of reasons
- Lease Availability – There’s simply more to choose from outside of hot geographical areas (HGA). It’s also typically much easier for Operators or lease investment groups to acquire more acreage on the notion that the first phase of development will meet production estimates.
- Known formations – Even though we like leases outside of the HGAs, we still want to find good field data and any old well logs from the lease or surrounding leases. Blanket formations in the Mid-Continent stretch across various states and they are relatively un or under-recovered, like in Kansas and Oklahoma
- Pricing – Leases are simple cheaper outside of the HGA along with locking down surrounding leases for future development.
- Royalty – non-HGA leases tend to have lower royalties vs almost all other HGA
- Stranded reserves – Leases that have stranded wells in HGAs typically have been evaluated many more times over non HGA leases. Also, due to less enthusiasm to look at these stranded reserves, you can typically find more percentage remaining in non-HGAs. Simply put, the low-hanging fruit on HGA has most likely already picked.
- Motivated service providers – this is critical. We find that service providers really don’t want to leave their hometowns for too long. If they can find work closer to their house, they will…and will do it for less money and quicker turn-around times.
In short, good programs can be found just about anywhere and, in many cases, have better appeal on paper.