Oil Company Investment

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rvflyer
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Oil Company Investment

Post by rvflyer » Sat May 04, 2019 7:08 am

For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?

riverguy
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Re: Oil Company Investment

Post by riverguy » Sat May 04, 2019 8:10 am

You’re not investing in the company. You’d be participating in wells. Seems like typical terms from their projects page.

You can make a lot of money but you should probably know something about decline curves and the ability to analyze the deal and determine your range of outcomes based on well performance.

ExitStageLeft
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Re: Oil Company Investment

Post by ExitStageLeft » Sat May 04, 2019 10:05 am

If you've got a reasonable cap on your investment such as no more than 5% of your portfolio then it could be a worthwhile investment. Things to consider are how liquid your investment would be and whether the investment is structured to fairly reward risk. There are plenty of real estate investment deals where the the investor carries most of the risk yet the developer reaps most of the reward. That wouldn't make such a great investment.

jminv
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Re: Oil Company Investment

Post by jminv » Sat May 04, 2019 11:17 am

As another poster mentioned, you’re investing in wells, not the company.

Do you have any ability to value what you are buying? If you don’t, you should steer clear of it or pay someone who does to evaluate it. There is a crowdfunding site for these types of deals, crude funder, that have accredited and non-accredited options with relatively low minimums per deal. Maybe look there first.

As far as dealing with that specific company, it looks to be a small family run business. It seems like a little random to have come across them online so I would guess you know them locally or met them or someone who invested with them somewhere.

Boglegrappler
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Re: Oil Company Investment

Post by Boglegrappler » Sat May 04, 2019 12:01 pm

I used to do some oil exploration company finance work.

If you want to gamble, you can go ahead. But most people have no concept whatsoever of the difference in resources (both human and capital) between the independent exploration companies and the major and sub major oil companies. It is the difference between high school baseball and the major leagues. You will be "swimming upstream" against a strong current as your investment managers compete for opportunities.

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BigOil
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Re: Oil Company Investment

Post by BigOil » Sat May 04, 2019 12:15 pm

ExitStageLeft wrote:
Sat May 04, 2019 10:05 am
If you've got a reasonable cap on your investment such as no more than 5% of your portfolio then it could be a worthwhile investment. Things to consider are how liquid your investment would be and whether the investment is structured to fairly reward risk. There are plenty of real estate investment deals where the the investor carries most of the risk yet the developer reaps most of the reward. That wouldn't make such a great investment.
This is typical of most PE-type "accredited investor" deals as well as these oil things... risk-reward is not there, and because some investors "win or win some" people tend think it was a good decision ex-ante. Idiosyncratic risks are VERY hard to assess especially as a non-insider.
But if oil prices rise and/or geopolitics breaks one way -- investors may look like "geniuses"...

Best (risk-reward) money is from those that wind and unwind these things (friction of any deals is ALWAYS first to make a dollar).
Then maybe the sophisticated capital that consolidates wells into efficient portfolios, and perhaps the entrepreneurs and rights owners that actually started the ball rolling. Unsophisticated investors...nope.

Short answer... I think for small players it's essentially gambling, YMMV.

P.S. the big oil (sophisticated) money (see my screen name LOL) looked for HUGE RORs and then split risk across many deals shared with others--- still had deals turn to excrement from time-to-time; plus only a relatively small number IMHO of the bigger upstream or integrated oil companies are well-governed through ups and downs of this market to be good fiduciaires for their shareholders (my logic here may not fully extrapolate to analyzing these little deals but the big RORs needed do apply IMHO)... Nonetheless ignorant investor folks can and do make money when oil prices are high enough...

timshel
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Re: Oil Company Investment

Post by timshel » Sat May 04, 2019 12:31 pm

There is no detail on their website, but would have to believe that you would be participating in drilling and production. Typically, this will not happen on a heads up basis, which means that you will pay a promote for your interest. Most commonly, paying a promote means you will disproportionately pay any costs. For example, if the promote was cost plus 15% and you are acquiring a 10% interest, you would pay 11.5% of costs. Lots of variations on the promote terms, including a wide range on the cost-plus percentage, which costs are promoted and which are heads up.

Yes, you can make money on this, but are lots of ways this can go sideways. The well may come up dry. Costs may significantly overrun. If the wells are in OK resource plays like STACK or SCOOP (horizontal wells that depend on frac technology), production rates decline very rapidly - you have to keep drilling to keep your production levels from falling off. And one particular risk that many overlook - as a participant in the well, you will become an owner in the oil and gas leases that provide the right to drill. This means that you share in legal risk. For example, if royalty owners claim that they were not paid correctly, someone is hurt on the wellsite, well production spills and causes an environmental problem, etc., you likely are exposed to potential liability (regardless of that fact that you are not the well operator).

At a basic level, this is no different than any potential investment, which means there are real risks to consider. Just like any other possible investment, would not recommend participating unless you are sure that you understand what you are buying into.

Valuethinker
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Re: Oil Company Investment

Post by Valuethinker » Sat May 04, 2019 3:45 pm

rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.

timshel
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Re: Oil Company Investment

Post by timshel » Sat May 04, 2019 6:59 pm

Not necessarily a sign of fraud due to this being tied to individual investors. It is not at all uncommon for smaller oil companies to combine funding from high net worth-types as well as more traditional funding sources. Particularly true when access to funding is competitive, as smaller companies often need to layer funding from different sources. There are also examples of fraud in this space - one of the reasons that anyone investing here needs to do appropriate due diligence.

riverguy
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Re: Oil Company Investment

Post by riverguy » Sat May 04, 2019 9:10 pm

Valuethinker wrote:
Sat May 04, 2019 3:45 pm
rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.
For some reason Bogleheads have an irrational tendency to think that anything but publicly listed securities are a scam.

The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.

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arcticpineapplecorp.
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Re: Oil Company Investment

Post by arcticpineapplecorp. » Sat May 04, 2019 9:37 pm

riverguy wrote:
Sat May 04, 2019 9:10 pm
Valuethinker wrote:
Sat May 04, 2019 3:45 pm
rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.
For some reason Bogleheads have an irrational tendency to think that anything but publicly listed securities are a scam.

The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
it's not that anything not publicly traded is a scam, per se, but rather it's much harder to evaluate a company that is not publicly traded because they don't have the same reporting requirements. So how do you really know what you're getting when you buy something that you can't/won't get all the information you need to make an informed decision?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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HomerJ
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Re: Oil Company Investment

Post by HomerJ » Sun May 05, 2019 12:09 am

Valuethinker wrote:
Sat May 04, 2019 3:45 pm
rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.
I know someone who ran a fraudulent oil drilling company. He stole millions from people like the OP.

He was investigated by the Feds, lost his house, and had to return some of the money he stole, but apparently not all of it. Had a good lawyer and did zero jail time.

I would never invest money in a company like this. If they were legit, they would have ZERO need to ask small investors for money.
Last edited by HomerJ on Sun May 05, 2019 12:13 am, edited 1 time in total.
The J stands for Jay

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HomerJ
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Re: Oil Company Investment

Post by HomerJ » Sun May 05, 2019 12:11 am

riverguy wrote:
Sat May 04, 2019 9:10 pm
The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
List those multiple legit reasons please.
The J stands for Jay

riverguy
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Re: Oil Company Investment

Post by riverguy » Sun May 05, 2019 6:18 am

HomerJ wrote:
Sun May 05, 2019 12:11 am
riverguy wrote:
Sat May 04, 2019 9:10 pm
The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
List those multiple legit reasons please.
More opportunities than money, increased returns with investors, reduce risk in a single project, etc.

Valuethinker
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Re: Oil Company Investment

Post by Valuethinker » Sun May 05, 2019 6:37 am

riverguy wrote:
Sat May 04, 2019 9:10 pm
Valuethinker wrote:
Sat May 04, 2019 3:45 pm
rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.
For some reason Bogleheads have an irrational tendency to think that anything but publicly listed securities are a scam.

The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
Perhaps I am reasoning by false analogy.

I had a run of investing in private tech companies.

Even when things went wrong the Founders and the funding advisers usually took money off the table.

If institutional money came in the individual investors usually got diluted to hell.

Some of the companies, including in retrospect one I worked for a time, definitely had crooked stuff going on. I was too blind to see it.

So my scepticism of risky oil drilling is based on my scepticism of early stage tech investing. Which was a crapshoot and even where the company was somewhat successful early stage investors lost out.

Maybe it's a false analogy.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Oil Company Investment

Post by Valuethinker » Sun May 05, 2019 6:43 am

arcticpineapplecorp. wrote:
Sat May 04, 2019 9:37 pm
riverguy wrote:
Sat May 04, 2019 9:10 pm
Valuethinker wrote:
Sat May 04, 2019 3:45 pm
rvflyer wrote:
Sat May 04, 2019 7:08 am
For those with expertise in this area of horizontal drilling in places like OK and TX, what do you think of investments in small independent companies like this? Roxexploration.com This would be with money purely destined for the "green felt table". Has anyone had good or bad experiences in this line of investing?
Smells like a wonderful opportunity to get defrauded.

Even if it is not actual fraud you have to ask yourself why, if this is a good opportunity, they cannot fund it from industry insiders? The fracking industry has spawned a number of industry billionaires and plenty of millionaires. Why don't they fund it?

I am reading Bethany Macleans excellent and short book on fracking and finance. It is eye opening to me at least.
For some reason Bogleheads have an irrational tendency to think that anything but publicly listed securities are a scam.

The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
it's not that anything not publicly traded is a scam, per se, but rather it's much harder to evaluate a company that is not publicly traded because they don't have the same reporting requirements. So how do you really know what you're getting when you buy something that you can't/won't get all the information you need to make an informed decision?
See "the China Hussle" movie for holes in the disclosure of listed companies (Nasdaq).

Or Boiler Room for fraud in listed stocks.

That being said public company disclosure rules are massively greater than they are for private companies. And auditors directors and officers of the company are at far greater legal risk than with a private company.

And investors at least in theory have liquidity. They can sell if they don't like the situation.

None of these protections apply to shareholders in private companies.

Valuethinker
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Re: Oil Company Investment

Post by Valuethinker » Sun May 05, 2019 6:47 am

riverguy wrote:
Sun May 05, 2019 6:18 am
HomerJ wrote:
Sun May 05, 2019 12:11 am
riverguy wrote:
Sat May 04, 2019 9:10 pm
The preposition of "why don't they fund it themselves if its so good" is nonsense too. SO many legit reasons people offer up portions of their projects.
List those multiple legit reasons please.
More opportunities than money, increased returns with investors, reduce risk in a single project, etc.
You see where I have encountered these things there was usually a "friends and family" whip round to fund the opportunity. Most people knew people in the same industry who were already personally rich and who would fund a startup with cash if they liked the look of the founders and of the technology.

If the opportunity needed larger amounts of capital they went straight to the institutional venture capital funds.

How is the oil fracking business different?

Valuethinker
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Re: Oil Company Investment

Post by Valuethinker » Sun May 05, 2019 6:53 am

I should add I knew someone who was running small cap energy funds for one of the big fund managers on the early 80s boom. Fidelity or someone else big at the time.

Based in London he met with private detectives in Denver I think. The stories of fraud theft and criminal activity were just legend. Hair raising.

I don't know if the fracking industry is now like the wildcatters then but I did see similar sorts of malfeasance in the dot com bubble. Personal payoffs etc.

alfaspider
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Re: Oil Company Investment

Post by alfaspider » Sun May 05, 2019 7:00 am

Something to understand about shale:

In the old days (pre shale), wildcatters were looking for bonanzas, where one well would produce for many years. It was high risk high reward- a lottery ticket. With shale, it’s all about operational efficiency. The wells have steep decline rates and you need to constantly drill to keep up production. But you also need a decent amount of rock and a big budget to find peak efficiency. The big players are always working to hit the bulls eye with regard to well spacing and location.

Small players can’t really compete in that efficiency game with public companies that can spend hundreds of millions streamlining their process and have significant bargaining power with suppliers. Large players can also withstand the huge swings in oil prices without going bust.

If you want to play the game, there are plenty of public companies you could invest in.

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Wiggums
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Re: Oil Company Investment

Post by Wiggums » Sun May 05, 2019 7:20 am

I worked for a man in the late 70’s who invested in several oil wells. None of them were good investments. The risk is high and the chance of success is far from guaranteed.

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