Energy is lucrative. But anyone can claim to have oil and gas interests for sale. It takes industry savvy to separate the true oil men from the legions of oil patch phonies.
When considering an oil well investment, it’s essential to have a good process to weed out crooks, the inexperienced and the promoters.
1.) Bet on the Jockey, Not Just the Horse
We have all heard it before, but it really does matter who you do business with. The oil and gas business is tough enough already — now add in someone that lacks experience. This is a recipe for a lost investment. Make sure operators, and their teams, are experts.
2.) Data, Data, and More Data
Data is critical for an experienced reservoir engineer to evaluate logs, offsetting production, decline curves and much more to ensure you have a decent opportunity to make oil. Make sure that the operators you work with provide good data and that a first-class third party reviews it.
3.) Follow the Documents
Investors in today’s economic climate are so anxious to escape low interest rates that sometimes it seems like anyone can just shout “Yeehaw! I’m drilling a well!” and have investors lined up around the block. However, not everyone has a permit to actually drill the well. EnergyFunders requires a permit and places that permit into its online due diligence package for verified investors to review.
An oil patch phony may not want you to see the supporting title documentation behind their claim that they own the rights to drill in a particular location. Maybe the promoter doesn’t have knowledge of the industry and has substituted a slick sales pitch. Investors should verify ownership.
EnergyFunders requires original leases, title opinions and any subsequent assignments that show how the seller obtained their interest in the oil and gas leases. These leases form the basis for holding the rights to drill in a drilling unit or on a lease large enough to meet state spacing requirements. Our form agreements also require the seller to bear the risk of title defects.
4.) Avoid Promoted Projects
There’s just not enough money in these projects at $50 oil for a promoter to take 10%-15% in a fee upfront. At today’s new normal prices, investor should be aware that promoters (those that make fees for raising money) should be making much less. Be sure and ask questions like, “how are you making money?”
Equity crowdfunding platforms like EnergyFunders don’t take investment fees, only an equity stake in the project. This means our interests are aligned with yours, because we only make a profit when you do if the well succeeds.
5.) Look for Shared Interests
Operators know that EnergyFunders is founded by lawyers and that the entire investment is managed by one party. Unifying investors can thwart fraudsters who are looking to take advantage of lots of little investors who make decisions independently.
Our interests are aligned with yours — we get a share in the well, just like you and we only profit when you do.
Full transparency for the investor with data consisting of the original leases, title work and permit to drill is essential for oil well investments. It’s exactly what you’ll get when you invest through EnergyFunders.
We will provide investors the same due diligence that seasoned insiders should find before investing in a deal. That’s the ethical approach. It’s also smart business. Our approach is to weed out the riff-raff so our investors can enjoy a legitimate, transparent investing experience inside the investor-only portion of our site. Alaskan ice salesmen, snake oil salesmen and questionable characters are denied entrance by the large, bald man manning the front door.
While no one can guarantee outcomes, we believe informed investors make the best choices.