Wednesday, May 7, 2008

Conducting due diligence before investing in an oil or gas project

Be sure to conduct due diligence before investing in an oil and gas investment.
There are many companies selling oil and gas investments. Many of these companies make money by marking up the costs to assure a profit, even if the drilled oil/gas well turns out dry (bad). For this reason, you should conduct due diligence on a company and the associated oil or gas project you are considering investing in.

How long have they been in business?
Find out how long the company (usually an oil developer) has been in business. What is the owner’s experience in the oil and gas business? How many projects have they successfully funded, drilled, and brought online in the past couple of years? What are the specific returns on invested funds for each of those wells?

How is the drilling rig operator selected?
Find out how the developer selects the driller and operator for each well. Some developers have their own driller and operator to assure being paid for services whether the well hits or not. Also, these developers may not have experience drilling special situation wells. You should look for developers that bring together the right driller and operator for each well who have experience and equipment to assure the highest probability of success. For example, if a well requires horizontal drilling, the developer should find a driller and operator who has drilled many successful horizontal wells.

Check for disciplinary or legal actions.
Check with the state’s department of securities and attorney general for any disciplinary or legal action against the company or its principles.

Ask for ten personal, professional, and client references.
Professional references could include the company’s banker, accountant, lawyer, or other professionals. It is easy to provide a couple of client references that always say good things. However, it is much harder to provide ten unless the company actively maintains good relationships with everyone it deals with.

Check with the Better Business Bureau on how the company stands.
Are there any negative reports against the company? Is the company a BBB member?

Continue due diligence until you are ready to make a decision.
Continue researching what you can about the company until you feel comfortable making the investment or you feel they are not worth the investment risk. If you feel pressure from the company during your investigation, this may be a red flag. They may be trying to rush your decision to invest in order to cut your research short. Don’t let them take control. It is your money at risk, not theirs. Continue your research until you find a reputable oil producer with a project that fits nicely into your investment strategy.

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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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