Oil Well Investing - Anyone dabble in this?

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Nathan Drake
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Oil Well Investing - Anyone dabble in this?

Post by Nathan Drake »

Some oil interests are on the market that the seller is pricing at $200,000 and generates $10-15k in net income per month. Seems too good to be true, and I know that there are a lot of oil scams out there.

Apparently the reason for the low price is that the interests are split up among over 100 different properties. I'm not sure how difficult this would be to manage, but the cash flow sounds enticing.
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Re: Oil Well Investing - Anyone dabble in this?

Post by BYUvol »

Nathan Drake wrote:Seems too good to be true
You already know the answer. With $10k net income it would pay back in 20 months, investments that nice don't exist. Sounds like the wells are about to dry up.
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FrugalInvestor
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Re: Oil Well Investing - Anyone dabble in this?

Post by FrugalInvestor »

Your initial investment returned within about 18 months and then the income just continues to flow? Definitely sounds too good to be true.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Nathan Drake »

FrugalInvestor wrote:Your initial investment returned within about 18 months and then the income just continues to flow? Definitely sounds too good to be true.
BYUvol wrote:
Nathan Drake wrote:Seems too good to be true
You already know the answer. With $10k net income it would pay back in 20 months, investments that nice don't exist. Sounds like the wells are about to dry up.

That's why it sounds way too goo to be true. But according to the company selling it, the person who owns the properties is in poor health, and the reason they passed on it themselves is because over 100 separate oil wells was too much accounting and "due diligence" -- "(title, marketing statements, LOS reviews, etc.)".

I'm not in the O&G field, and while the concept of oil wells is fairly simple, the business and everything involved (especially for 100+ interests) may not be. I tend to believe in investing what you understand, and this doesn't appear to be a very passive approach.

I asked the company selling it why the older gentleman doesn't just pay someone to run his operation for him while taking a cut of the profits. At those levels of income, even if he was only taking in half the proceeds, he'd be generating nearly 100K per year.

Paying 200K would liquidate my entire net worth, and since I have no experience in the field, appears to be wayyyy to risky, but I was wondering if anyone here had some substantial experience in this area.
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Re: Oil Well Investing - Anyone dabble in this?

Post by FrugalInvestor »

It has 'scam' written all over it if you ask me. How much do you know about the company offering it to you?

But let's imagine that it's legit. If it's too much accounting and due dilligence for them what makes you think you could handle it? Do you have a staff not to mention the expertise to handle these tasks?
Last edited by FrugalInvestor on Mon Aug 13, 2012 12:24 am, edited 1 time in total.
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Re: Oil Well Investing - Anyone dabble in this?

Post by heyyou »

The opportunity is just another very high risk investment with high expenses and someone else wants out. If that was a good investment, some hedge fund would have bought all of it years ago.

If it is being publicly shopped around, that shows it has been passed over by the rest of the financial industry. Merrill Lynch sold my Dad 4% 40 year bonds in 1966 at the start of a long period of much higher inflation. Think about how many others passed on that, before it was offered to a buyer in a small, rural town in farming and ranch country. In a poker game if you do not know who the patsy is, you are. Be grateful that you cannot afford to buy that mistake. Get used to the idea that you will make more money by not buying into supposedly lucrative deals.
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Nathan Drake
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Re: Oil Well Investing - Anyone dabble in this?

Post by Nathan Drake »

I know nothing about the company selling it, just that they "passed" on the deal and would only invest in 10-15k monthly income coming from at most 3 wells (not 100). If professionals in the industry are passing on it, there has to be a huge catch it. Just wanted some boglehead sanity to reiterate what I already knew.

I've heard some really bad scams about oil well investing.
Last edited by Nathan Drake on Mon Aug 13, 2012 12:54 am, edited 1 time in total.
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Post by heyyou »

To learn more about the oil patch, chase down a book about the failure of Continental Bank (I don't remember the title). It predates Michael Lewis by twenty years but is written in the same style. A bank made too many loans to oil operators in Oklahoma.

"Some businesses were out looking for oil, while others were just looking for investors." In some areas, oil was easy to find but too thick to pump, so an exploration company could have a good discovery record while disguising their lack of finding producing wells.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Prokofiev »

Nathan,

I suspect that oil drilling is a big part of your genetic make-up. Your family started the whole thing, so of course you are drawn to this opportunity!
Maybe just go for it. After all, it's only $200k.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Johm221122 »

Try BOGLEHEAD philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
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Re: Oil Well Investing - Anyone dabble in this?

Post by rustymutt »

Nathan Drake wrote:Some oil interests are on the market that the seller is pricing at $200,000 and generates $10-15k in net income per month. Seems too good to be true, and I know that there are a lot of oil scams out there.

Apparently the reason for the low price is that the interests are split up among over 100 different properties. I'm not sure how difficult this would be to manage, but the cash flow sounds enticing.
Sounds to good to be true? Why would anyone sell off this type of investment in current environment. It's a scam.
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Re: Oil Well Investing - Anyone dabble in this?

Post by nisiprius »

You have answered all your own questions. Read your own responses. It doesn't matter whether it's a scam or not, or whether it is a good investment of its kind. It is not a suitable investment for you, you should not have let yourself get brought to the point of even considering it. You need to break off contact with the people that convinced you to think about it.

Read your own responses. You are talking about an investment that

* you cannot afford: "200K would liquidate my entire net worth"
* you do not understand
* that "sounds too good to be true."

So stop right there.

If you are not seriously thinking about it, and are just asking "is it really possible that scam artists are trying to bilk me out of my life savings," the answer is: yes, it is possible. In my very early days when to me the word "alternative" was connected with the counterculture, I called up an "alternative investments" firm to ask what they thought about Pax World Fund. Instead of saying "that's not the kind of investing we do," they suggested I come in and discuss it, and I did, and was told that after carefully examining Pax World Fund, it was a "loser" and I should put all my investing money into something complicated involving oil wells. It was a sure thing because it didn't matter whether the wells actually produced oil, I remember that much.

As to understanding your investments: the story is that the owner is walking away from a gold mine oil field simply because the properties are too complicated for him to deal with. If they are too complicated for the owner, how much work must you, an outsider, do to understand them? It's impossible. You would need to trust someone else to understand it for you.

(And it seems to me troublesome that the investment you are considering making just happens to be approximately your total net worth. Why are you not investing $10,000? Probably because there is a minimum. But why does the minimum happen to approximate your net worth? Notice that $200,000 can't be enough for you to be a real participant, either. You will not a player, you will not be flying to wherever to spend day-long meetings going over geologists' reports on 100 wells. Is this a once-in-a-lifetime chance to get special access to an investment that would normally be beyond your reach? Is the minimum normally $1 million or $500,000 and someone is going out on a limb to let you in for just $200,000? Are they acting irritable at your questions and saying "look, we don't have time for this, there are others waiting if you aren't interested?")
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Re: Oil Well Investing - Anyone dabble in this?

Post by KyleAAA »

BYUvol wrote:
Nathan Drake wrote:Seems too good to be true
You already know the answer. With $10k net income it would pay back in 20 months, investments that nice don't exist. Sounds like the wells are about to dry up.
Not necessarily. Most small businesses sell at similar valuations, even small businesses where you can buy a more or less passive stake. I wouldn't immediately write it off as too-good-to-be-true. Such investments most definitely do exist.
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Re: Oil Well Investing - Anyone dabble in this?

Post by JW-Retired »

I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
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Re: Oil Well Investing - Anyone dabble in this?

Post by SnapShots »

This is likely a Working Interest and NOT a Royalty Interest or they wouldn't want to sell. A working interest investor is liable for all costs associated with the drilling and production. If you own mineral rights an oil/gas company pays the owner a per acre fee for the right to drill and if oil/gas is found the mineral rights owner receives a check in the mail for an agreed upon percentage. A royalty owner is not responsible for ongoing operating costs of the well.

If you're interested in this you MUST CONSULT with a knowledgeable oil and gas attorney.
Investopedia explains 'Working Interests' While the idea of earning unlimited profits from owning a working interest in a well might sound wonderful, the downside can wipe out unsuspecting investors. It's generally recommended that investors without deep pockets and a solid working knowledge of oil and gas exploration stick with limited liability royalty interests.
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Re: Oil Well Investing - Anyone dabble in this?

Post by MattinAustin »

I put some money in a Natural Gas well when I was around 22 and was sold on a deal just like that. Hell I wanted to put more money in but I didn't have it. Well its been over a decade and I'm still waiting on that first check.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Valuethinker »

JW Nearly Retired wrote:I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
JW
if it is based on natural gas prices, then it should have fallen off a cliff. Natural gas prices, wholesale, have fallen by something like 70%.

(it may be it was getting so far below the wholesale price of NG, that it didn't matter). It is my thought that this is probably an oil 'stripper well' (a nodding donkey, in effect) that is producing some small amount of oil every year (they were still doing so in Petrolia, Ontario, in the 1980s-- oil was first discovered there in the 1870s).

For an investment like this, I would expect a multipler of say 10x on the low side (giving the buyer 10% pa return) and 5% on the high side perhaps (assuming at least a 20 year life, %5 return pa). Maybe 8x (12.5% return).

So at least $4k and maybe as much as $20k.
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Re: Oil Well Investing - Anyone dabble in this?

Post by SimonJester »

Does this involved wiring money to a Nigerian in the Cayman islands?

Health problems, huge money making opportunity, this smells of scam a mile away...
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Re: Oil Well Investing - Anyone dabble in this?

Post by jimbojones »

Ever see There Will Be Blood? Somebody else is likely drinking your milkshake already!
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Re: Oil Well Investing - Anyone dabble in this?

Post by Snowjob »

Valuethinker wrote:
JW Nearly Retired wrote:I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
JW
if it is based on natural gas prices, then it should have fallen off a cliff. Natural gas prices, wholesale, have fallen by something like 70%.

(it may be it was getting so far below the wholesale price of NG, that it didn't matter). It is my thought that this is probably an oil 'stripper well' (a nodding donkey, in effect) that is producing some small amount of oil every year (they were still doing so in Petrolia, Ontario, in the 1980s-- oil was first discovered there in the 1870s).

For an investment like this, I would expect a multipler of say 10x on the low side (giving the buyer 10% pa return) and 5% on the high side perhaps (assuming at least a 20 year life, %5 return pa). Maybe 8x (12.5% return).

So at least $4k and maybe as much as $20k.
What about the increase in wells being drilled? old fields have longer lives do to the new technology being used to extract resources. this could offset the pricing decline depending on the property.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Snowjob »

Nathan Drake wrote:I know nothing about the company selling it, just that they "passed" on the deal and would only invest in 10-15k monthly income coming from at most 3 wells (not 100). If professionals in the industry are passing on it, there has to be a huge catch it. Just wanted some boglehead sanity to reiterate what I already knew.

I've heard some really bad scams about oil well investing.
Nathan,

I would suggest you buy some shares in a publicly traded upstream MLP, like a Linn, Breitburn, or Vanguard if you want the exposure to this sort of thing. Those are publicly traded companies and I certainly would feel 100x more comfortable investing in the properies that they own than this thing you've stumbled upon. Far less work on your end too -- though you will need to deal with the K1 forms if you keep it in your taxable account. You can avoid the K1's and put them in a tax advantaged account but make sure you dont own to much, you dont want to have UBTI in excess of 1,000 dollars or your IRA may be liable for taxes.
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Re: Oil Well Investing - Anyone dabble in this?

Post by HomerJ »

A far-removed family member of mine sold $100 million or so in "oil-well investments" to morons who actually believed a $200k investment that paid $10k a month was real.

He got indicted, but never went to jail... had to pay some fines, but apparently managed to keep a few million (I have no idea how much he still has, but they haven't stopped spending yet)...

Anyway... scams like this certainly do exist.
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Post by HomerJ »

Prokofiev wrote:Nathan,

I suspect that oil drilling is a big part of your genetic make-up. Your family started the whole thing, so of course you are drawn to this opportunity!
Maybe just go for it. After all, it's only $200k.
What?
Nathan Drake wrote:Paying 200K would liquidate my entire net worth
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Re: Oil Well Investing - Anyone dabble in this?

Post by FrugalInvestor »

HomerJ wrote:
Prokofiev wrote:Nathan,

I suspect that oil drilling is a big part of your genetic make-up. Your family started the whole thing, so of course you are drawn to this opportunity!
Maybe just go for it. After all, it's only $200k.
What?
Nathan Drake wrote:Paying 200K would liquidate my entire net worth
I think that comment was intended as tongue in cheek, at least I hope so.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Prokofiev »

FrugalInvestor wrote:
HomerJ wrote:
Prokofiev wrote:Nathan,

I suspect that oil drilling is a big part of your genetic make-up. Your family started the whole thing, so of course you are drawn to this opportunity!
Maybe just go for it. After all, it's only $200k.
What?
Nathan Drake wrote:Paying 200K would liquidate my entire net worth
I think that comment was intended as tongue in cheek, at least I hope so.
Perhaps the irony of a guy named Drake asking about drilling oil wells was lost on some.

http://en.wikipedia.org/wiki/Drake_Well

" Edwin Drake, a former conductor for the New York and New Haven Railroad, invested $200, his entire savings, into the Pennsylvania Rock Oil Company."

" Drake set up a stock company to extract and market the oil. But, while his pioneering work led to the growth of an oil industry that made many people fabulously rich, for Drake riches proved elusive. Drake did not possess good business acumen. Then he lost all of his savings in oil speculation in 1863. He was to end up as an impoverished old man. "
Last edited by Prokofiev on Mon Aug 13, 2012 3:13 pm, edited 1 time in total.
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Post by pshonore »

Snowjob wrote:
Nathan Drake wrote:I know nothing about the company selling it, just that they "passed" on the deal and would only invest in 10-15k monthly income coming from at most 3 wells (not 100). If professionals in the industry are passing on it, there has to be a huge catch it. Just wanted some boglehead sanity to reiterate what I already knew.

I've heard some really bad scams about oil well investing.
Nathan,

I would suggest you buy some shares in a publicly traded upstream MLP, like a Linn, Breitburn, or Vanguard if you want the exposure to this sort of thing. Those are publicly traded companies and I certainly would feel 100x more comfortable investing in the properies that they own than this thing you've stumbled upon. Far less work on your end too -- though you will need to deal with the K1 forms if you keep it in your taxable account. You can avoid the K1's and put them in a tax advantaged account but make sure you dont own to much, you dont want to have UBTI in excess of 1,000 dollars or your IRA may be liable for taxes.
Unfortunately, Breitburn and Vanguard (VNR - not THE Vanguard) produce large amounts of UBTI and probably should be avoided in IRAs, Oddly, Linn does not which has always puzzled me. In addition to the E&P MLPs there are several conventional Royalty Trust like BPT, PBT, SJT, etc,
They're pretty much pure plays on the price of O&G and unlike MLPs, do not hedge.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Valuethinker »

Snowjob wrote:
Valuethinker wrote:
JW Nearly Retired wrote:I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
JW
if it is based on natural gas prices, then it should have fallen off a cliff. Natural gas prices, wholesale, have fallen by something like 70%.

(it may be it was getting so far below the wholesale price of NG, that it didn't matter). It is my thought that this is probably an oil 'stripper well' (a nodding donkey, in effect) that is producing some small amount of oil every year (they were still doing so in Petrolia, Ontario, in the 1980s-- oil was first discovered there in the 1870s).

For an investment like this, I would expect a multipler of say 10x on the low side (giving the buyer 10% pa return) and 5% on the high side perhaps (assuming at least a 20 year life, %5 return pa). Maybe 8x (12.5% return).

So at least $4k and maybe as much as $20k.
What about the increase in wells being drilled? old fields have longer lives do to the new technology being used to extract resources. this could offset the pricing decline depending on the property.
I am so far into the realm of speculation here that we shouldn't take my analysis as anything more than bar room talk.

I was simply trying to work out what a small, apparently permanent income from an illiquid private asset might be worth-- a discount rate of 5-10%, say. Looking at it from the point of the view of a buyer, and so give the previous poster an idea of what fair price *might* be.

Of course you'd have to do proper due diligence.
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Re: Oil Well Investing - Anyone dabble in this?

Post by skatterZ »

Used to be in the oil business. Was that income or revenue? Big difference. Managing 100 wells can be a lot of work. If you have operate, you are way over your head. If you are just a small working interest owner with no oil patch experience, you may get taken over and over. We usually refered to none industry investors as "mullets" as in a sucker fish. The further you had to get away from the deal to sell it, the worse the deal was. Find a nice index fund.
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Re: Oil Well Investing - Anyone dabble in this?

Post by FrugalInvestor »

Prokofiev wrote:Perhaps the irony of a guy named Drake asking about drilling oil wells was lost on some.

http://en.wikipedia.org/wiki/Drake_Well

" Edwin Drake, a former conductor for the New York and New Haven Railroad, invested $200, his entire savings, into the Pennsylvania Rock Oil Company."

" Drake set up a stock company to extract and market the oil. But, while his pioneering work led to the growth of an oil industry that made many people fabulously rich, for Drake riches proved elusive. Drake did not possess good business acumen. Then he lost all of his savings in oil speculation in 1863. He was to end up as an impoverished old man. "
Went right past me. Thanks for illuminating.
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Re: Oil Well Investing - Anyone dabble in this?

Post by SeattleCPA »

One thing to note about this oil and gas stuff is that a lot of the people making money on it as "investors" are farmers and ranchers who, basically via dumb luck, ended up farming or ranching over an oil field.

Also, and I realize this is may not relevant since OP has probably discarded idea given feedback, but those oil royalty streams degrade very quickly. Apache Corp, e.g., estimates that it'll get maybe 500,000 barrels of oil per well it drills in the Bakken... but maybe 20% of that comes out the first twelve months and maybe 50% of that in the first five years...

If someone is interested, I can dig up the link to the last investors day presentation Apache did which gives well production statistics...

P.S. I mention this degradation stuff because it partly (largely?) explains the apparent high ROI
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Re: Oil Well Investing - Anyone dabble in this?

Post by dbr »

OT: I once held some shares in a gas trust I inherited from my Grandmother. Over three generations of ownership these shares delivered a pretty handsome income stream. Today those gas fields are essentially depleted but the payout, soon to evaporate, recently soared to about 20%. I always thought it was cool to own something labelled as "units of beneficent interest." More than that you could actually drive out and stand on top of the actual gas if you wanted to spend that many hours traveling to the middle of nowhere.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Lumpr »

What type of interst is it? Working, override, mineral? Btw - if you don't know the difference between these you probably have no business even thinking about this.
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Re: Oil Well Investing - Anyone dabble in this?

Post by ourbrooks »

I would also recommend being able to read a wireline log and understanding what a decline curve is.

A typical well in a formation with natural permiability lasts 10-25 years; after that, you have to drill another well not too close to the original ones.
Wells in which pressure treatments are done to increase the permiability ("fracking") don't seem to last as long; reported life times are more like five years but this may be very much dependent on the particular formation. After the five years, you can try pressure treating again, but, in many areas, there's not enough history to tell how successful this will be.

The post by seattleCPA may have hit the nail on the head; the revenue quotes are based on initial production which may decline substantially in a year. The owners are trying to dump the wells now, while the production figures look good.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Grt2bOutdoors »

I recommend buying some equity in one of the large majors and let them do the worrying for you while you sit back and enjoy the quarterly dividends that roll in. I think you're playing with fire especially if you do not hold a petroleum engineering degree from one of the reputed schools or a geology degree from Colorado School of Mines.
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Post by arcticpineapplecorp. »

Even Edgar Cayce tried it (with the sole interest of making money in order to build a hospital...that eventually WAS built and is in Virginia Beach, but thanks to a rich benefactor, not due to striking it rich through oil).

"Over 80 years ago, Edgar Cayce (known as ‘The Sleeping Prophet’) identified the rolling hills and streams of San Saba County, Texas, as containing the “Mother Pool — a major oil field capable of producing vast quantities of oil. Mr. Cayce’s venture into Texas to find this oil is widely acknowledged to be his biggest failure. Cayce’s well was sabotaged on several occasions by his own associates. "

“The oil was there”, Cayce lamented in a letter to a friend. “I just wasn’t equal to handling the men who were associated with it”.

Best of Luck! :happy

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Re: Oil Well Investing - Anyone dabble in this?

Post by madef88 »

ourbrooks wrote: The post by seattleCPA may have hit the nail on the head; the revenue quotes are based on initial production which may decline substantially in a year. The owners are trying to dump the wells now, while the production figures look good.
+1 All the way.

I work in the oilfield and have seen professional engineers fail to realize how much higher the initial numbers are than the eventual yearly production, resulting in very optimistic forecasts.

I'd stay out of this "opportunity" and stick with index funds.
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Re: Oil Well Investing - Anyone dabble in this?

Post by Nathan Drake »

Thanks all, I was never seriously considering this offer, just wanted a sanity check on an "investment" that appeared to have a P/E ratio of close to ~1.

Someone earlier in this thread mentioned that investments like this do exist, my only question is - what kind? It seems to me like if a company or investment is priced that low relative to earnings, that the earnings are most certainly not stable and the investment is incredibly risky.
Valuethinker
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Re: Oil Well Investing - Anyone dabble in this?

Post by Valuethinker »

Nathan Drake wrote:Thanks all, I was never seriously considering this offer, just wanted a sanity check on an "investment" that appeared to have a P/E ratio of close to ~1.

Someone earlier in this thread mentioned that investments like this do exist, my only question is - what kind? It seems to me like if a company or investment is priced that low relative to earnings, that the earnings are most certainly not stable and the investment is incredibly risky.
Or you are getting a distribution of capital as well as income.

A PE of 1x on a resource that is falling by 50% pa, is a PE of 2x next year, 4x, 8x, 16x etc.

ie the reverse of Apple (16x this year, but probably only 8x 5 years out).

That's the point about depletion-- these fields represent a distribution of capital, as well as income-- the underlying resource is depleting.
JW-Retired
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Re: Oil Well Investing - Anyone dabble in this?

Post by JW-Retired »

Valuethinker wrote:
JW Nearly Retired wrote:I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
JW
if it is based on natural gas prices, then it should have fallen off a cliff. Natural gas prices, wholesale, have fallen by something like 70%.
You are correct about this. I was guessing wrong. I checked a statement and about 80% of the royalties were from oil last year.

I have no explanation why it has been paying for such a long time. I found in old records handed down that there were some 7 mineral rights interests purchased in 1937 to 1940 by a DW ancestor. There is a list that appears to be from a final 1940 probate document. I was wrong again, they are in Kansas and Oaklahoma not Texas. Also found 5 actual old mineral deeds or bills of sale for these interests. Two were for small (sub 1%) shares of 160 acres sections at a price of $10 each. Three were for city lot to 10 acre sizes sold for $1! I don't know which of these are still actually producing oil/gas.
JW
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Valuethinker
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Re: Oil Well Investing - Anyone dabble in this?

Post by Valuethinker »

JW Nearly Retired wrote:
Valuethinker wrote:
JW Nearly Retired wrote:I would not touch this likely scam but oil and gas interests can make money. My wife inherited a tiny Texas oil and gas royalty interest that has paid increasing royalties for decades. A great uncle bought it originally we think in the 1940's or earlier. Last few years it's been yielding $500-$1000/year (depends on nat. gas prices I think). She gets periodic offers to buy this asset but they never offer more than about twice the yearly income. There is next to no record keeping needed, we just get a 1099-misc.
JW
if it is based on natural gas prices, then it should have fallen off a cliff. Natural gas prices, wholesale, have fallen by something like 70%.
You are correct about this. I was guessing wrong. I checked a statement and about 80% of the royalties were from oil last year.

I have no explanation why it has been paying for such a long time.
Probably a kicking donkey or few. Oil lasts a *long* time post gusher.
I found in old records handed down that there were some 7 mineral rights interests purchased in 1937 to 1940 by a DW ancestor. There is a list that appears to be from a final 1940 probate document. I was wrong again, they are in Kansas and Oaklahoma not Texas. Also found 5 actual old mineral deeds or bills of sale for these interests. Two were for small (sub 1%) shares of 160 acres sections at a price of $10 each. Three were for city lot to 10 acre sizes sold for $1! I don't know which of these are still actually producing oil/gas.
JW
The price of oil collapsed in the 1930s, that's when the Texas Railroad Commission was set up to cartelize the price of oil (cartels were a good thing, then).

It's worth having the old paperwork if you ever have to justify the thing for tax purposes.

It's a nice little earner, I guess-- I'd be sceptical of selling it (unless someone offered me say $10k+) because the buyer would know more than the seller about the true value.
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Re: Oil Well Investing - Anyone dabble in this?

Post by JW-Retired »

Valuethinker wrote: The price of oil collapsed in the 1930s, that's when the Texas Railroad Commission was set up to cartelize the price of oil (cartels were a good thing, then).

It's worth having the old paperwork if you ever have to justify the thing for tax purposes.

It's a nice little earner, I guess-- I'd be sceptical of selling it (unless someone offered me say $10k+) because the buyer would know more than the seller about the true value.
We would never sell for the hyper-lowball prices offered. I can't imagine who would. But the offers come from different companies several times a years. They must get a few desperate for cash takers now and then.
JW
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bayview
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Re: Oil Well Investing - Anyone dabble in this?

Post by bayview »

Nathan Drake wrote:
FrugalInvestor wrote:Your initial investment returned within about 18 months and then the income just continues to flow? Definitely sounds too good to be true.
BYUvol wrote:
Nathan Drake wrote:Seems too good to be true
You already know the answer. With $10k net income it would pay back in 20 months, investments that nice don't exist. Sounds like the wells are about to dry up.

That's why it sounds way too goo to be true. But according to the company selling it, the person who owns the properties is in poor health, and the reason they passed on it themselves is because over 100 separate oil wells was too much accounting and "due diligence" -- "(title, marketing statements, LOS reviews, etc.)".

I'm not in the O&G field, and while the concept of oil wells is fairly simple, the business and everything involved (especially for 100+ interests) may not be. I tend to believe in investing what you understand, and this doesn't appear to be a very passive approach.

I asked the company selling it why the older gentleman doesn't just pay someone to run his operation for him while taking a cut of the profits. At those levels of income, even if he was only taking in half the proceeds, he'd be generating nearly 100K per year.

Paying 200K would liquidate my entire net worth, and since I have no experience in the field, appears to be wayyyy to risky, but I was wondering if anyone here had some substantial experience in this area.
Not to pile on the poor OP, but if there were viability still left in these wells, I have to believe that the heirs/potential investors would have muddled their ways through the 100+ investors, paperwork or no paperwork. I've never known a serious investor to pass up an opportunity simply because there was some initial hassle.

Since they didn't do so, and since they have way more knowledge about the wells than do you or I or anyone else, my assumption is that the wells are dogs. There are plenty more chumps out there. I'd leave this investment to them. :wink: and :sharebeer
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
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