A classic oil and gas investing deal structure popular during the last century was called “third for a quarter.” This deal structure was dominant way before crowdfunding or master limited partnerships. This was back when incredible deals got shopped around downtown Houston by going door to door to professional offices.
The deal was essentially one in which oil and gas investors would finance an entire oil and gas well and the operator would receive a 25% cut for putting the deal together.
The Structure of the Third for a Quarter Oil Deal
Typically, there would be three investors and, of course, one operator. Hence, an investor would pay for 1/3 of the deal and would retain 1/4 ownership in the well when it completed as a commercial producer. Operators still had to finance the set-up of the project, which could include purchasing leases and identifying geologically sound projects.
How Good Was the Third for a Quarter Deal?
Some old-timers debate whether it was a good deal for investors. Some claim that 25% is too high of a stake and others think that if the well produced oil investors would make many multiples of their initial investment, making the 25% a bargain. Ultimately, that was a decision for each investor to make.
We think the best option to is have the investors’ and deal creators’ interests aligned and to give investors all the information they need to evaluate the project and oil deal structure.
At the end of the day, the third for a quarter deal served a purpose in promoting oil and gas investments and allowed many operators and investors alike to become wealthy on energy independence. If you’re interested in the history of the Texas oil and gas industry, this book is your best bet. Texas Monthly also has a great story from February 1981, which features the third for a quarter deal as part of the story.
If you’re interested in viewing our carefully vetted oil and gas deals, create a free account.