Wednesday, April 9, 2008

Steps involved in a typical oil and gas drilling venture/investment – Part 1 finding the best drilling location

Ever wonder how a typical oil or gas drilling venture happens from beginning to end? As investors in oil and gas, we don’t all see the things that have to happen before a successful well can start paying out. This is the first article in a series that will provide an overview from beginning to end (payment of investors). The next article can be read here.

The oil producer is responsible for everything:
Usually an oil producer is responsible for an oil/gas well from start to finish. The producer acts like the project manager assuring all resources are lined up and paperwork is filed. Since there are significant costs involved with drilling a well, good reputable producers work to maximize the probability of a successful well.

Finding the best location to drill:
Initially the producer scouts out the best available land for drilling. Ideally, there will be producing wells in the nearby area that give some indication of the expected production from the land being evaluated. The producer may secure rights to look at log data from these wells, which give additional indications whether the underground formation of the prospective land is promising for producing oil/gas. The producer should also secure seismic data of the land and a geologist to interpret the data for locating the best candidate spot to drill for hydrocarbons (oil or gas).

Using the appropriate seismic technology for the oil/gas drilling project:
There are many types of seismic technology with 3D seismic being a widely used advanced technology. With 3D seismic, you get a three dimensional view of the underground formations and can see where oil or gas is most likely to be before drilling, thus increasing your odds tremendously. This type of data is not cheap and some producers may save on costs by only using 2D seismic or other less accurate means of determining a drilling location. One problem with 2D is that a pocket of water can look like a hot zone for oil or gas. You won’t really find that out until you drill into the prospective zone and run a well log. The decision to use 2D alone or 3D depends on many factors. The key is to have an experienced producer who knows the strengths and weaknesses of each to know which is best for a prospective well.

Final checks before beginning to drill the oil/gas well:
At some point a decision is made concerning which land to drill. The producer should have checked with the courthouse on available acreage for drilling at some time in the scouting process to find out which land does or does not already have a mineral rights lease. If there is no lease, then the producer negotiates with the mineral owner for a lease. If there is a lease, the producer will check title on the lease for the holders. The producer then usually gives an up front cash payment to the lease holders for the right to drill one or more wells on the land, as well as some type of percentage of oil/gas eventually sold from a good well.

Next article in this series:
In the next article, we will continue with the producer creating a private placement memorandum and locating investors to participate in the oil and gas drilling venture/ investment.

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Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: Past articles can easily be found at This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content

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