Part 1 - What differentiates a successful accredited investor? What makes them successful?

Overview:
This will be a little different from my usual articles. Rather than talk about a specific investment or investment technique, I felt it would be beneficial to talk about what makes many accredited investors successful. How do they think and work? What differentiates them from those who have not achieved their goals?

The information provided will be largely biased toward my own experiences and not necessarily representative of all accredited investors. With this in mind, I share my thoughts on what traits you need to be a successful accredited investor. I plan to complete this series in several parts with this article being part 1. Read the blog next week for part 2.

Common elements of a successful accredited investor:
In my view, elements of a successful accredited investor usually include the following:
- Have a dream: They want something that motivates change

- Have desire: They have a strong desire to reach the dream

- Have an end goal: They can visualize what life will be like when the dream is achieved

- Understand change is hard: They know change is hard

- Don’t let fear win: They don’t let fear stop them from moving forward

- Have a plan: They create a specific plan of action for changes needed to achieve their end goal

- Execute the plan: They work their plan

- Constantly learn: They love learning about new things, skills, how others overcome, etc.

- Continually improve: They refine/improve their plan of action while moving closer to the end goal

- Never give up: They don’t give up, but may readjust their end goal to be more realistic

- Give back: They want to give back by helping others succeed

I will cover each of these in more detail in this series of articles on the successful accredited investor.

Have a dream:
Deliberate success begins with a dream, not being satisfied with status quo. You need to see something beyond your reach that requires stretching yourself beyond your known current abilities and means. The dream must be strong enough to create desire to take action.

Have desire:
Your dream must create a strong enough desire to take action toward making a change. Most people have a very hard time making change. They may not be happy where they are in life, but they understand it and know what to expect. Even in misery, the person involved can find some strange level of comfort. The misery is familiar to them. They have learned to live within the associated environment and, to some extent know what to do, what to expect.

Have an end goal:
Visualize and understand what the end goal is. Where do you want to be and what do you want to be doing once the dream has been achieved? How will achieving the dream change your life? What does it look and feel like? Think about all the things that need to change in order to get you to that end goal.

Next article in the series:
Next week, the next article will cover understanding change is hard, overcoming fear, creating a plan of action toward the end goal, and executing that plan.

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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. We are not licensed to sell any interest in a project, nor are we registered advisors. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for other topics to cover in future articles.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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

Understanding Oil and Gas Speculators – Why Do We Need Them?

Oil and gas speculation is in the news:
Lately we have been reading about Congress and their desire to regulate speculation in the oil and gas market. What is this speculation? Who are the
speculators and how do they work?

What is an oil/gas speculator?
A “speculator”, in this sense, is an investor in the futures market who buys or sells futures contracts on oil or gas. In general, an investor will buy a futures contract (called going long) if he or she feels the price is going up. Alternatively, if the price is assumed to be going down, the investor will sell a futures contract (going short).

What is a futures contract?
There is an article on the Telegraph’s website (a Brittish newspaper) that does a good job describing the futures market. Also, the Chicago Board of Trade (www.cbot.com) website has a good brochure that describes the futures process mostly about agricultural products, but the principles are pretty much true for oil and gas futures contracts as well.

Bottom line – a futures contract is a legally binding contract between a buyer and seller to deliver a standardized quantity of the underlying product at a specified price on a specific future date. What this does is allow a seller and a buyer to agree on a set price to transact the trade of a item in the future, oil or gas in the case of this article, while shifting the risk of price changes onto the investor who buys the contract as a futures contract. The buyer could be a airline company who uses lots of gasoline and must be able to predict what the cost will be on a future date when they need to purchase enough quantity to fly their planes. The seller could be a refiner that produces jet fuel from crude oil for airlines and agrees to the future date and price. The seller is also able to project what future revenues will be from the sale of fuel on a future date. In fact, the seller may actually contract to sell fuel that is not yet in inventory. In this case, the refiner may also have a future contract with a crude oil supplier for deliver of oil on a future date at a future agreed price. In this case, there is a chain of contracts, all vulnerable to dramatic changes in actual market price for oil (or similarly for gas).

How are prices determined?
Both parties, the airline and the refiner, will negotiate the future price based on estimates of what the price of fuel will be trading at on that date using the best available data today. This estimate may be close or way off, either higher or lower. World events can occur during the time of the contract to dramatically change the price. If prices increase dramatically over the agreed price, the seller loses potential profits that would have been made at the higher market price. If prices go down dramatically, then the buyer could end up spending much more for the fuel than a competing airline who buys at the lower market price. Therefore, without a means to mitigate the risk of price changes, both parties may hesitate before entering a contract and both will not be able to accurately project future revenues and costs.

What is the role of a speculator?
This is where a speculator can help. The futures speculator takes on this risk of price changes during the time of the contract. The buyer and seller can feel confident to enter their best estimate for prices on a future date knowing they can then pass the contract to a futures trader, “speculator”, to take on the risk. The speculator that feels the price will increase to the contracted price buys the contract, which is known as “going long”. The speculator that feels prices will not reach the agreed price will sell the contract before it expires, known as “going short”. In fact, short sellers can make money as the price decreases by forcing someone to buy back the contract at a lower price than they sold at it. This is beyond the purpose of this article, but is one strategy that speculators use.

Strategies speculators use:
There are many strategies speculators use to hedge their long or short bet on the future price of oil or gas. Some involve buying or selling more than one contract and different strike prices (the agreed contracted price the underlying oil or gas will be sold at in the future). Some involve buying both a long and short position at different prices. Some involve buying or selling multiple contracts at the same strike price. Then there are options that can be traded on these futures contracts, which again is a topic for another article.

Futures markets support strong business:
The futures market provides buyers and sellers with a world-wide trading platform using standardized contracts that are easily traded and understood by futures traders. Buyers and sellers can feel confident to enter these future contracts knowing the risk is easily passed to future traders. This is a critical tool for business to accurately project future revenues, costs, and earnings in a volatile market. Businesses can move forward transacting business in unpredictable market conditions. Without the futures market, businesses would not be able to accurately project their costs and revenues. They may be forced to be overly conservative and hold off investments for future growth, which could lead to less jobs or even loss of jobs. It could mean missed business opportunities due to being too conservative on investments for future growth.

Prices are not determined by the speculator, but by market conditions:
Speculators are also guessing what the future price will be when the contract expiration date comes. They are subject to world events that can dramatically change the current trading price of oil and gas for past futures contracts that end each day. Buying and selling futures contracts does not change the price, the demand and supply of oil and gas each day does. I don’t disagree there may be some large groups who could manipulate the supply or demand for oil or gas each day (OPEC, emerging country growth – China & India, etc.).

Summary:
These are my personal thoughts on the wonderful benefits provided by the futures market and associated futures traders, also known as speculators. I don’t claim to be an authority on such markets, but these are my personal observations.

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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. We are not licensed to sell any interest in a project, nor are we registered advisors. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for other topics to cover in future articles.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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

Understanding An Existing Multi-well Oil Drilling Investment Opportunity

Overview of the project:
We are currently invested as lease a owner in a multi-well oil drilling project that will be drilled in Texas. This is a five well project that is being purchased by a foreign investor and slated for drilling to start very soon thereafter. Each of the five wells will be similar to the single well project written of in the previous article posted last week. This article will provide highlights of what a multi-well project looks like to provide readers with insights when considering investing in similar oil and gas drilling ventures. It is written for educational purposes only and is not a solicitation to invest or a prospectus. Some hypothetical situations have been added for purposes of helping the investor conduct his/her own systematic “what if” analytical approach when considering these types of investments.

This five well project involves re-entry into vertically drilled wells by Exxon in the mid-80s by using horizontal drilling upwards of a mile through the known pay zones to minimize the risk of failure while maximizing the potential flow of gas and oil (payout to investor). These wells were abandoned at that time since oil was too cheap to continue producing from the well.

An overview of horizontal drilling (repeat from last week’s single well article):
Horizontal drilling is a fairly new process for drilling where the drill bit can actually be steered sideways toward the highest concentrations of oil and gas. The drill operator usually has tools allowing logging while drilling (LWD) the hole. This means the operator can see what the formations in the ground are around the drill bit to know what the move toward or away from. This provides much better odds for a successful well than simply drilling vertical wells and logging the well after it is drilled to see whether the well will be a success or not. Also, another benefit of horizontal drilling is that the wells tend to produce strong for the first five years or so and then continue producing at a slower rate over the next 15 years or so. Over the life of this well, the investor may gain significant multiples of total return on their initial investment.

Understanding how the investment is structured:
- Investors ownership: This five well project is being sold to a single investor. The investor has a 75% working interest (WI) and 54% net revenue interest (NRI) in the well. This means the investor owns 3/4 of the well for tax purposes, and receive 54% of the revenues generated by the well since other percentages go to the land owner, lease owner, oil producer, and others involved outside of the investor.

- Cost of investment: This is an $11.2M investment.

- Projected return on investment: Conservative revenue models project a 56% annual internal rate of return (IRR) for ten years. This is much less than the projection from the single well described in last week’s article. The main reason is that this 56% return is over ten years where the projections in last week’s article was only covering the first year’s return. Another reason is that the 56% projection assumes three of the five wells are drilled the first year and one of those wells does not produce. It also assumes the last two wells are drilled the second year and one of those wells is bad. Therefore, the conservative projection assumes that two of the five wells are dry holes (non-producing wells). There are other differences you should look for between investments such as the Working Interest and Net Revenue Interest differing from project to project.

- Tax savings benefit: The projected return does not consider any added returns from tax savings due to write offs which could add an additional 25 – 50% to the first year return based on your tax bracket. As a reminder, all invested funds in domestic independent oil and gas drilling ventures are deductible against all income types with the intangible drilling costs (IDC) being fully deductible the first year and the remaining tangible costs being deducted over seven years. This project has a high percentage of IDC so a large portion of the total investment can be written off the first year against all other income. I don’t have the actual IDC percentage for this project. For purposes of this example I will assume 70% of the project is IDC (fairly typical for many projects). In this case, 70% of the $11.2M can be deducted the first year saving $7.8M in taxes. The remaining 30% tangible costs are deducted over seven years.

- Yearly tax free income benefit: In addition to the tax deductions, 15 – 23% of each year’s income is tax free for these types of domestic oil and gas drilling ventures. A projected first year income of $7.6M at $130 per barrel oil with a total 300 barrels of oil equivalent (BOE) daily production means the investor would receive a minimum of 15% tax free, or $1.1M. If you are in a 35% tax bracket, that is a savings of $385,000 in taxes that is additional income.

Putting it all together for expected 1st year return:
At $130 per barrel for oil and 300 BOE daily production, this project is projected to create $7.6M income + $7.8M tax savings (70% of invested funds from IDC 1st year deduction) + $385,000 income tax savings (1st 15% of the year's income is tax free) for a total of $15.8M the first year on a $11.2M investment. This is a projected 141% total return on the investment. As stated earlier, this return assumes 2 of the five wells are bad. Also, in general, horizontal wells provide stronger returns initially and over a longer period of time than vertically drilled wells. Therefore, this project could generate many multiples of the original invested funds over the life of the well.

Lets look at hypothetical high projection scenarios:
Recently another major oil drilling corporation has had several similar wells in the area come in at 500 to 700 BOE daily production.

For fun, let’s make assumptions that assume ideal situations concerning production from the associated wells. Again, these are hypothetical and idea situations provided to help the investor think about doing their own ‘what if” analysis of investments. As an investor, it is good to know your upper, as well as your lower boundaries of expectation before making an investment.

Scenario 1: Let’s assume each of the three wells come in at 500 BOE, that would be a total of 1,500 BOE daily (remember we also assume two of the five wells are dry holes). That would be five times the 300 BOE production shown earlier for this project. This would translate into a first year income of $38M at $130 per barrel oil instead of the $7.6M calculated for the original total 300 BOE projected daily production for the first year. That would be a 339% return ($38M/$11.2M) on investment in the first year of production from all three wells.

Scenario 2: Now lets assume all five wells are good and each producing 500 BOE daily. Total production from the five wells would be 2,500 BOE daily, 8.33 times the 300 BOE production. This translates into a first year income of $63.3M at $130 per barrel oil. That would be a 565% ($63.3M/$11.2M) return on investment in the first year of production from all five wells.

Again, these examples do not count the additional savings from taxes. Keep in mind that production will start dropping off each year for the wells so the income shown is not going to last through the life of the wells. However, if either of these first full year of production scenarios comes in, you can see why investing in oil and gas drilling ventures can be very profitable for investors in the right projects. The remaining years would be icing on the cake.

Low time required for an outstanding return:
As an investor, most of your time will be spent investigating the initial investment to consider participating in a oil/gas drilling venture and funding your share of ownership in the partnership. Once invested, you can sit back and watch the monthly payment checks come in. A good return for very low overall time commitment.

Disclaimer:
Again, information provided in this article covers projections on a multi-well horizontal drilling project. These are not to be considered actual returns. There are many factors that can cause the returns to vary from projections, including the possibility the well may not turn out to be producible (a dry hole - oil industry jargon). Each investor should always do his/her own due diligence before considering participating in any investment. This article is provided for educational purposes.

Summary:
I hope this example of a multi-well oil drilling investment helps you understand some of the things I have discussed in previous articles to this blog. This is why the oil and gas can be very profitable for investors who know what they are doing and make calculated investments in this industry. I never suggest anyone invest more than they are willing to lose so seek advice of a professional if you are considering investing in oil and gas for the first time.

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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. We are not licensed to sell any interest in a project, nor are we registered advisors. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for other topics to cover in future articles.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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

Understanding An Existing Oil Drilling Investment Opportunity

Overview of the project:
We are currently invested in a single well being drilled in Texas. We are about to participate in a new five well project that will be open for funding by investors very soon. Each of the five wells will be drilled similar to this single well. This article will provide some highlights of this single well project to help readers understand what they will hear about when considering an investment in oil/gas drilling. It is written for educational purposes only and is not a solicitation to invest or a prospectus.

This single well project is a re-entry into a vertical well drilled by Exxon in the mid-80s. The well was capped at that time since oil was too cheap to continue producing from the well. This investment pays for a rig to go back into the vertically drilled hole to then drill horizontally upwards of a mile through the pay zone (layer of earth where the oil and gas are known to exist from the well’s previous log report.

An overview of horizontal drilling:
Horizontal drilling is a fairly new process for drilling where the drill bit can actually be steered sideways toward the highest concentrations of oil and gas. The drill operator usually has tools allowing logging while drilling (LWD) the hole. This means the operator can see what the formations in the ground are around the drill bit to know what the move toward or away from. This provides much better odds for a successful well than simply drilling vertical wells and logging the well after it is drilled to see whether the well will be a success or not. Also, another benefit of horizontal drilling is that the wells tend to produce strong for the first five years or so and then continue producing at a slower rate over the next 15 years or so. Over the life of this well, the investor may gain significant multiples of total return on their initial investment.

Understanding how the investment is structured:
- Investors ownership: Investors have 33% working interest (WI) and 25% net revenue interest (NRI) in the well. This means they own 1/3 of the well for tax purposes, but receive 25% of the revenues generated by the well since other percentages to the land owner, lease owner, oil producer, and others involved outside of investors.

- Cost of investment: Each unit of investment costs $100,000. This provides 2.75% WI and 2.0873% NRI in the well for the investor.

- Projected return on investment: This project was initially formed when oil was selling for around $80 per barrel. Projected earnings for the investor’s $100,000 at that time was $119,808 at 200 barrels of oil equivalent (BOE) per day for $80 per barrel oil. With oil now trading about $125 per barrel, this equates to around $187,200 income or a 187% return in the first year of production. This does not count the additional tax savings granted by congress for independent producers of domestic oil and gas.

- Tax savings benefit: There is an expected additional average tax savings of $32,000. All invested funds in domestic independent oil and gas drilling ventures are deductible against all income types with the intangible drilling costs (IDC) being fully deductible the first year and the remaining tangible costs being deducted over seven years. For this project, IDC are about 80% of the project so $80,000 of the $100,000 invested is fully deductible in the first year by the investor.

- Yearly tax free income benefit: In addition to the tax deductions, 15 – 23% of each year’s income is tax free for these types of domestic oil and gas drilling ventures. With a projected first year income of $187,200 at $125 per barrel oil, the investor would receive a minimum of 15% tax free, or $28,080. If you are in a 35% tax bracket, that is a savings of $9,828 in taxes. This is additional income to you.

Putting it all together for expected 1st year return:
At $125 per barrel for oil and 200 BOE daily production, this project is projected to create $187,200 income + $32,000 tax savings (80% of invested funds from IDC 1st year deduction) + $9,828 income tax savings (1st 15% of the year's income is tax free) for a total of $229,028 the first year for a $100,000 investment. This is a projected 229% total return on the investment. As stated earlier, in general, horizontal wells provide stronger returns initially and over longer periods of time than vertically drilled wells. Therefore, this project could generate many multiples of the original $100,000 invested funds over the life of the well.

New information since the original project was put together:
Recently another major oil drilling corporation has had several similar wells in the area come in at 500 to 700 BOE daily production. If this project comes in at 500 BOE daily, the first year income would be $468,000 at $125 per barrel oil instead of the $187,200 calculated for the original 200 BOE projected daily production. That would be a 468% return on investment in the first year. Again, this does not count the additional savings from taxes. We are keeping our fingers crossed that the well comes in around this range.

Low time required for an outstanding return:
As an investor, most of your time will be spent investigating the initial investment to consider participating in a oil/gas drilling venture and funding your share of ownership in the partnership. Once invested, you can sit back and watch the monthly payment checks come in. A good return for very low overall time commitment.

Disclaimer:
Information provided in this article covers projections on a single well horizontal project. These are not to be considered actual returns. There are many factors that can cause the returns to vary from projections, including the possibility the well may not turn out to be producible (a dry hole - oil industry jargon). Each investor should always do his/her own due diligence before considering participating in any investment. This article is provided for educational purposes.

Summary:
I hope this example of a real existing oil drilling investment helps you understand some of the things I have discussed in previous articles to this blog. This is why the oil and gas can be very profitable for investors who know what they are doing and make calculated investments in this industry. I never suggest anyone invest more than they are willing to lose so seek advice of a professional if you are considering investing in oil and gas for the first time.

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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. We are not licensed to sell any interest in a project, nor are we registered advisors. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for other topics to cover in future articles.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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

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.

Summary:
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 MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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

Part 3: How To Choose A Specific Oil and Gas Drilling Venture To Invest In

Third and final article in the series:
This is the third article in this series about how to make the choice on a specific oil/gas well drilling project to invest in. Click here to read the first article.

Focusing specifically on an investment in drilling for oil and gas:
In the previous article, we covered many ways of investing in oil and gas. From this point forward, we will address those investors who have decided to invest in domestic drilling ventures for oil and gas.

Choosing a specific oil developer to invest with:
After you have clearly defined your investment strategy (see the first article in this series), you need to look for oil producers that offer the type of investments that fit your strategy. However, there are many inexperienced and questionable oil producers out there trying to get your money.

Once you decide to invest in oil and gas, where do you go to find viable projects?
Your best bet would be to find someone who is currently a successful oil and gas investor and find out what they are doing. Ask everyone you know if they know such a person. After you exhaust those sources, ask professionals who deal with high net people such as financial advisers, the local Chamber of Commerce, accountants, lawyers, etc. The most risky place to look for these investments is over the Internet, magazine or newspaper ads, and investment chat rooms.

Be cautious before investing with a oil producer.
You must be very cautious and check these producers out. A previous article provided provides information to conduct due diligence on oil producers to narrow your search to reputable candidates. Part of your elimination process should be understanding the various oil and gas investments they have to offer and matching those against your investment strategy.

How much should you invest?
When you finally chose the best project and associated oil producer, then consider how much you want to invest. Another past article covers a strategy for systematically creating debt free wealth through oil and gas investing. Spread your available investing capital across several projects to mitigate the risk of any one project being bad. This also ensures you have capital to invest when a true opportunity presents itself. If you are always fully invested, then you may be tempted to borrow funds for investing. Don’t start on that path with oil and gas investments. There are too many risks and you could end up in lots of debt with little cash flow to cover the payments.

Continually learn.
Eventually you need to start with one investment in oil and gas drilling. Don’t research so much that you never take this first step. Know that you will make mistakes and there will be dry holes (a term used to describe a drilled hole that will not produce oil or gas). You will lose money. However, if you never risk your money then you will never have the chance to participate in the very productive wells that can return 20 or more times your money over the life of the well. The rewards can be significant for productive wells, especially at today’s high prices.

Do your homework.
Don’t pass on the opportunity to participate in oil and gas well investments based on negative things you may hear about those companies that give the industry a bad name. Research the companies you want to invest in. Understand whether they are using the latest technologies. Continually learn as much as you can about the oil and gas industry. Find one or more successful oil or gas investor who will mentor and guide you. Learn from them to not repeat the mistakes they may have made. Find out what makes them successful. What is their investment strategy? They may get you into deals you would otherwise not be made aware of. In any case, make a decision and move forward systematically with your investment in oil and gas. Be sure to follow your investment strategy to help make good decisions and avoid those “investments” that do not get you closer to your investing goals that follow your 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 MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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.

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Part 2: How To Choose A Specific Oil and Gas Drilling Venture To Invest In

Second article in the series:
This is the second article in this series about how to make the choice on a specific oil/gas well drilling project to invest in. Click here to read the first article.

Understand there are many ways to invest in oil and gas:
There are so many different types of investments out there today. A few include:

-- Simply purchasing stocks in oil and gas related companies. Your investment loss is limited to the amount you invest so the risk is manageable. You do need to watch these stocks over time to make sure the underlying company isn’t doing things that may cause it to go into bankruptcy or other problems. Also, the stocks tend to fluctuate with whether oil and gas are in or out of favor at the time.

-- Purchasing an oil Exchange Traded Fund (ETF). You can invest in a fund that buys and sells oil or gas. This way you are not dependent on the underlying company, but only on what direction the price of oil and gas moves. Therefore, these ETF will also fluctuate with whether oil and gas are in or out of favor at the time. However, you only have the risk of price movement from the oil and gas and not from a company as you do with stocks.

-- Trade commodities futures contracts. Here you buy contracts on oil or gas in the futures market. You can put very little money down in order to control a significant amount of oil and gas. If the price moves only a little, you stand to either gain or lose many multiples of that movement. Since the risk of loss is much more than your investment, these are extremely risky investments. Professionals know tricks to control these risks, but most individual investors do not. As a result, these investor have to watch these prices, at a very minimum, once per day to consider readjusting their positions. Again, if the price moves in the opposite direction the investor bets, then the losses can be very large, very quickly. Many times the price of oil and gas moves very big overnight in foreign markets and opens in U.S. markets sharply higher or lower. You will not have control to sell your position (in many cases) and may wake up to a significant loss. You must be very careful when playing the futures market. There are many professionals in the market who trade them all day, every day. They can drive the price against you very quickly.

-- Purchase of land where oil or gas may be drilled. The hope is that oil or gas will be drilled and productive on the land to provide a portion of the revenues back to you as the land owner. However, if you buy land in an area that is known to have productive wells, then the price of the land may already be inflated to a point the revenues may not be that significant after paying payments on the land. Be careful.

-- Purchase of a lease that covers the right to drill on a specific piece of land. In this case, since you are not the land owner, you don’t have to worry about covering payments on the land. You can receive a portion of the revenues from the wells, but will also share revenues with the land owner, the developer, others involved in drilling and servicing of the well, and with investors in the wells that are drilled on the leased land. For a small fee to lease the land, the revenues from productive wells can be significant, while the risk is only the funds you pay for the lease. The lease purchaser should secure land that is known to be productive or has a high probability of being productive. The lease should provide the rights to conduct seismic and other studies of the land to verify the potential for good wells. Also, leases usually cover the right to drill several wells on the land, which reduces the risk to the investor/owner of the lease since hopefully not all wells will be dry (bad or non productive). Smart leases are low risk and have the potential for huge returns. For these reasons, most leases are only offered to large institutional investors and not to individual investors. Many large oil companies like Exxon will own these leases while, in some cases, letting small oil producers with their associated individual investors fund the drilling of each well.

-- Participation in drilling one or more oil and gas wells. As a participant, you are usually a general partner with all the associated tax advantages granted by congress for domestic wells to reduce our dependence on importing foreign oil. However, the oil producer and investors in the well take the risk of the well either being productive or dry. However, with all the associated tax advantages (tax free income, writeoff of invested funds against all income types, reduction of up to 40% of your alternative minimum tax income, etc.), and with most of the revenues generated form a well going to these investors, the overall returns can be very significant for good productive wells. However, due to the high risks that go with the potentially high rewards, investors should only consider investing in wells with a high probability of returning all invested funds in 6 to 18 months. That makes the risk to reward ratio reasonable against the risk assumed with drilling oil and gas wells. The probabilities for a productive well can be increased by using the latest seismic technologies, conducting thorough research on other wells in the same area, using reputable oil producers and well operators, etc. Most of the articles posted on this blog are centered around these investors in specific oil and gas projects. Visit the blog site for additional articles.

-- Participate in funding the transportation of oil and gas. Some companies offer partnerships to fund placement of a pipeline to oil and gas wells for transporting the oil or gas to a buyer. As an investor, you usually receive a percentage of revenues resulting from the oil or gas flowing through your funded pipeline.

-- Participation on a off-shore oil platform. These types of investments usually involve tens or hundreds of millions of dollars. Due the the significant funds required, these investments are almost always only offered to very high net investors and/or institutional investors. Once a platform is placed, there can be many wells drilled from one platform. The result is increasing revenues from multiple wells without the additional significant investment of a new platform each time a well is drilled. The revenues generated from a platform can be significant if many productive wells are drilled from it.

Next article in this series:
The next article in this series will continue thoughts on what an investor needs to do when considering investing in an oil/gas drilling venture.

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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 MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. 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