Monday, July 21, 2008

Understanding An Existing Oil Rig Purchase Investment Opportunity

What is an oil rig?
A drilling rig is used to drill the hole to reach oil and/or natural gas. Rigs come in many shapes and sizes.
- A shallow land based well may only require a mobile rig that is mounted on the back of a special vehicle. The vehicle positions itself over the drill site and begins drilling.

- A deep land based well requires a much larger platform drilling rig. These rigs must have a strong enough motor to turn the drill bit and associated pipes through thousands of feet of ground. The pressure at those depths are tremendous. Some rigs have motors strong enough to drill sideways (horizontal drilling), along with all of the associated equipment.

- Off-shore/Ocean drilling can be conducted by special ships or by platforms of various sizes. There are also many other new tools available supporting drilling off-shore.

What are the benefits of investing in a rig?
A properly structured rig investment means continued and rising income for the associated investors. With oil and gas receiving record prices, the demand for drilling rigs is tremendous. This means they can demand increasing daily drilling rates from oil producers having their funded oil/gas drilling projects drilled. Rigs can demand from tens to hundreds of thousands of dollars each day to drill one hole. Depending on the depth of the hole, it can take a week or over a month to drill the hole. Rigs are employed almost every day of the year - 24 hours per day - seven days a week. Daily drilling rates are rising all the time due to high demand. The associated investors who own the rig receive a portion of this rising daily drilling fee back as rising income, usually paid monthly or quarterly. The investment is usually secured against the value of the rig so the rig could be sold to pay back the investors if needed making the investment very secure in today’s high demand environment (rising values for rigs).

Example of how a real existing rig investment is structured:
Currently, an oil producer we have a history of investing with has an offering for investors to purchase 1/3 interest in an oil rig. Highlights of the deal are:
- This is a land based rig used to drill deep wells and horizontal wells.

- Investors can invest from $30k upwards to the entire 1/3 purchase amount.

- This investment is secured with a lien against the rig. The rig is worth more than the value secured by the lien so investors are very likely to receive all invested funds back should the rig be sold in the unlikely event the investment does not work out.

- At the end of the third year, the 2/3 owner of the rig has the right to exercise several options: 1) purchase back the investor’s 1/3 ownership share, 2) sell his 2/3 ownership interest to a 3rd party or the existing investors, or 3) may opt to continue with the revenue sharing plan. Any one of the three is quite beneficial to the investors. Investors will either receive funds back and move on or will continue to receive ongoing revenues.

- Investors will receive a portion of the daily drilling rig fees in quarterly payments according to the amount invested. For this investment, investors expect a projected annual 18.4% internal rate of return on their investment. However, this is only based on the rig being used 320 days per year with a constant daily rate. In reality, as stated earlier, daily rates are rising and the rig will likely be used nearly all 365 days per year. Therefore, the actual returns should be higher.

Low time required for a good return:
As an investor, most of your time will be spent investigating the investment and funding your share of ownership in the partnership. Once invested, you can sit back and watch the expected increasing quarterly payment checks come in. A good return for very low time commitment.

I hope this example of a real existing oil rig investment opportunity helps you understand some of the things I have discussed in previous articles to this blog. I plan to cover a real oil/gas drilling venture in my blog next week.

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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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