Factors to consider when purchasing an Oil Well

At All Clear Energy, we take great care to research and evaluate each oil and gas lease we acquire, including existing producing wells. With producing well, there are often additional factors to consider which can can determine the viability of a successful oil production life span. Owning production means oil and gas reserves which are proven to produce either through current oil production operations or by performing the necessary workover operations to restore oil production in proven oil and gas fields.

Purchasing Producing Oil & Gas Properties

When evaluating an oil and gas lease or oil production for purchase, one of the most important factors is purchasing at the right price. Although there are a number of factors which can be used to determine the right price when buying oil production, the current and anticipated market price of oil is always of concern. Next up is the quantity of oil currently being produced in comparison to any additional work that might be needed to enhance existing production. These added work-over expenses should be factored in along with the anticipated life span of the current and existing production.

In addition to current and existing oil and gas production, know as proven oil and gas reserves, an oil or gas well may also contain additional hydrocarbon reserves behind pipe (shallower zones above current production) or deeper reserves in untapped reservoirs. With modern technology and new developments in drilling such as horizontal drilling or hydraulic fracing to name a few, these reserves could hold massive quantities of oil which should be accounted for.

In addition to oil revenues earned from producing properties, additional tax benefits may be available for the development and production of oil. Often times, these tax benefits could help to offset the initial cost of purchasing producing and existing oil and gas properties as well as offset the costs for further exploration and development of additional hydrocarbon reservoirs.

While a bit more complicated than selling gas from a producing well, oil production requires the use of additional surface equipment and downhole well equipment such as pumping units (Pump Jacks), tank batteries, oil to gas separators, flow lines and possibly even a salt water disposal system. While it is possible to transport oil via pipeline, most well head oil production requires that the oil and gas is stored in tanks near the well head. When the tanks are full, the oil gatherer (first purchaser) will bring their pump truck in to pick up the oil and transport it to the pipeline connection or refinery.

Selling Oil from a Producing Well

The oil gatherer is considered the “first purchaser” of the oil and will pay a market price based on the current market price from oil. This can fluctuate daily and has recently been over the $100 per barrel mark – a milestone that was an indication of the peak just a few years ago. There are a few primary considerations involving the sale of crude oil.

1. Who is the purchaser of the oil at the wellhead/original tanks?
2. What determines the price paid per barrel of oil at the wellhead/tanks?

There are generally two different types of purchasers of crude oil. The most common of independent oil companies in Texas are crude oil gathering companies, which purchase oil, transport it to the refineries/pipeline connection and re-sell to refineries. Major oil companies also purchase crude directly for their refinery operations.

The price of oil is determined based on a number of factors such as the specific quality known as “grade of oil” as well as the geophysical location of the actual well and pickup location itself and its proximity to the nearest pipeline or refinery. There is also a competitive aspect which is considered as well where there may be a number of oil gathering companies all competing for the purchase of the crude. These pricing considerations could be factored by the current supply vs. demand of oil in the short term as well as future projections in the long term. Additional transport costs too may vary the actual price paid at the well head.

As part of the Oil Restoration and Recycling Program, All Clear Energy is gearing up for its 2 well rework prospect in Kent County, Texas. These wells were drilled back in the late 1960′s and have a total production close to 150,000 barrels of oil. Given the current price of oil and favorable economic conditions, we will soon begin refurbishing operations out on the lease to restore one of the 2 wells back into production. Our goal is to convert one well into a salt water injection disposal well while producing from the other. To get regular updates and further detailed information on becoming an Industry Partner, please register for the site using the following link:

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