Oil and Gas Investments

An Overview of Oil and Gas Investments : Oil Well Drilling

Oil and gas investments are integral to the development of crude oil and natural gas wells in Texas. From the first stages of an oil well development prospect to production – enhanced recovery to secondary recovery, there are a number of investments which need to be made. Often these oil investments are made in stages and are dependent upon many circumstances such as the state of the economy, viability of the producing well and potential oil recovery volume.

Oil Prospecting and Geological Research

Oil Prospect and Lease GeologyInvesting in oil generally starts in the research and prospecting phase of oil and gas exploration. Oil Investments at this stage are early investments in which the outcome and rate of return may be hard to determine ahead of time. For an independent oil company such as All Clear Energy, the initial prospecting and research phase can be extensive and time consuming. Since there are still a lot of unknowns during this phase, the amount of time it takes to determine the viability of a project will be dependent upon the readily available data. Geologists are crucial during this phase to evaluate and recommend courses of action with regards to a prospect.

In researching existing oil or gas wells for acquisition there is often existing well data available which can be used to evaluate the merits of an acquisition or purchase. Buying existing oil wells is a way to make the most out of oil investments with known data and historical documentation such as existing production, well log and well data.

When determining the viability of a new well drill whether it is an offset location or exploratory well, data must be evaluated and developed as needed. This includes evaluating nearby well logs and historical well records, gathering seismic data or bringing in an expert geologist to evaluate the merits of a particular lease or area.

While this is generally a time consuming process, these early stage oil investments are important to determine the anticipated success and viability of an acquisition or new well drill prior to committing additional funds to secure the leasing rights. During this stage, the oil exploration company will ensure enough geological merits to proceed with next phase.

Oil Lease Investments | Oil Lease Acquisition

Oil Lease - All Clear EnergyBefore oil or gas can be extracted form the ground, the oil company must have permission from the land owner/mineral rights owner to explore for and produce hydrocarbons. In Texas, the generally rule of thumb is that in order to obtain the rights necessary to drill, test and produce a well, the oil company or leasing company must make a number of payments to the land owners/mineral rights owners.

The first payment is in the form of a lease bonus, which is an upfront cash payment to the respective owners for the rights to extract oil. Along with the upfront payment, the mineral owner and oil company will establish the oil or gas distribution percentages known as royalty interest which will be paid to the land/mineral owner based on the production of the well. This royalty percentage is important in the economics of the oil investment once active and into production. The land owners may also be compensated for surface damages incurred in the drilling and production of the well.

Once the leasing rights have been secured, the oil exploration company will usually continue with a more extensive geological evaluation to pin point the drilling locations and to reaffirm the geological evaluations. It is important for a company to secure the leasing rights to a particular area of interest before investing too much into a project. In the event the lease is unavailable or unable to be negotiated, the time and funds during the prospecting phase may never be realized.

For those investing into developing an oil or gas drilling prospect, a company has the potential to generate a return on their intitial oil investments by selling the prospect to an outside oil and gas company. At this phase, a company may sell the developed lease and prospect or continue with the development into the well preparation, drilling, testing and completion of a well.

Lease and Well Preparation

As each phase of drilling occurs, there are different levels of oil investments which need to be made. The next step in developing a new well drill is to survey the property and mark the locations for drill as well as to files the necessary drilling permits. The roads to the well site will be built and the location cleared in preparation for the drilling rig continues to materialize. Additional work is performed on site to ensure that the well site is prepared such as digging the reserve pits and ensure sufficient water for drilling operations. At this point, the commitment to drill has been increased as additional funds are required as the oil investments continue to materialize. It is important to note that at this phase, the oil investments generally rely on oil production as a way to generate returns. Until the will is online and producing, the costs to develop the prospect into a producing well continue to increase.

 

Initial Well Drilling

Oil Well DrillingOnce the site has been prepared for the drilling crew, operations and well drilling can commence with the initial drilling. Depending on the well depth, the time and costs to drill a well can vary greatly. During the drilling phase, the well bore is being evaluated and measured to determine all aspects of the well. A mud logger will be on site to evaluate the presence of hydrocarbons in coordination with an expert geologist. Together the mud logger and geologist will coordinate recommendations and provide guidance regarding the likelihood of commercial viability and to measure the initial success of the oil investment.

Once the well has reached its total depth, the well will be logged to determine the anticipated completion depth as well as identify any additional potential hydrocarbon bearing reservoirs. Provided a potential viable completion, the casing will be set and cemented in preparation for the completion phase. It is at this time that additional logging such as bond and Gamma logs will be conducted.

Oil Well Completion

The well completion will require an addition rig completion crew to move in to the location to set the remaining downhole equipment, perforate and stimulate the well. Depending on the volume of production and oil flow rates, additional surface equipment will be installed to bring the well into production including well heads equipment, pumping equipment, flow lines, separation equipment as well as storage tanks and electricity. Once complete and oil is being sent to the tanks, production operations will begin.

It is at this point where continued operations will be the determination of a successful oil investment. Once the well has been drilled and brought into production there could be various options when it comes to generating a return on the oil investment. If the well is producing in commercial quantities, the well could continue to produce and generate monthly revenue checks as returns for the mineral owner, oil company and/or owner or investor.

A proven oil well with production may be a lucrative investment for a production company looking to buy existing producing wells. This may present an opportunity for the oil company to sell the well for a profit and receive a lump sum payout shortly after completion. Often times, the current economic climate, oil price and confidence in the continued operation may play a factor in any post production disposition.