When investing in crude oil, gathering as much information about the operator as possible, including their track record and team, is essential. No matter how promising the return potential may seem, only consider an oil project if the operator has a team of industry experts to support the well’s drilling, completion, and extraction.
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Why Only Work With Top-Tier Operators?
Unsophisticated operators can cause overspending, execution delays, or, worse, negligence that leads to dry holes or operational failure. Here are a few considerations (and questions we ask) when reviewing the team members of an oil or gas project.
Questions for Operators
Here are the points you requested:
- How long has the company been in business?
- Do they participate alongside their investors in the well?
- Do they have relationships with other operators and form joint ventures (JVs) to participate in each other’s projects? This can be a positive sign if other operators trust the team’s integrity and the success of another exploration company’s project.
- How long have they been active in the basin where the project is located?
- What are the operators’ means of communication? (Calls, texts, emails, automated updates, etc.)
- How many wells do they currently operate on a day-to-day basis?
- Can the operator provide data so that you can compare past Authority for Expenditure (AFE) estimates for projects with the actual costs?
- What is their overall track record of finding hydrocarbons?
- What is their track record of finding commercially viable wells?
Questions for Geoscientists
Could you please take note of the following questions:
- Who is the geologist responsible for initiating the project?
- How long has the geologist been actively involved in the basin where the project is located?
- What is this team member’s payment method? Is it a contractor fee, a salary, or a carry-in-well arrangement?
- Was the geologist hired to provide an opinion to the operator/project generator, or will they actively study the test well and any developmental wells?
- What is the overall track record of geologists in finding hydrocarbons?
- What is the geologist’s track record in finding commercially viable wells? (Note: This differs from finding hydrocarbons, as a well may not be commercially viable even if hydrocarbons are present.)
Questions About Engineering/Operations
Equally critical to the geologist are the engineers or engineering teams. There are five main types of petroleum engineers: drilling, completions, facilities, production/operations, and reservoir engineers. All are knowledgeable in each department, but most specialize in one.
It is crucial to have a skilled team to locate and extract hydrocarbons from the ground. Engineers analyze data to ensure safe and cost-effective drilling operations, using various techniques to maximize the reservoir’s potential.
Like evaluating the geoscience team, you should ask yourself some questions about the engineering team controlling the project.
Please take note of the following questions:
- How long has the engineering team been active in the project location?
- Are they reputable, and do they have a degree in petroleum engineering, or are they field engineers? (Please note the importance of field engineers despite the crises that may arise during drilling operations.)
- Do the engineers have the expertise to utilize the latest technology and software? (Numerous software options are available, and it’s crucial to ensure that the input and output are accurate when working with modeling and estimations.)
- Was the engineer hired to provide an opinion to the operator/project generator, or will they be actively involved in studying the test well and any developmental wells?
- Are the engineering team members hired on a contract basis, or are they employees or operators?
Questions About Land
The ability to locate hydrocarbons worldwide doesn’t guarantee access to drilling. Without the necessary drilling rights, drilling is impossible anywhere. Securing the rights to drill depends on land ownership, making a proficient land team essential. This team ensures no lease ownership, land, and project partners complications.
- Is there a landman on the operator’s team?
- Does the landman have an AAPL (American Association of Petroleum Landmen) designation, such as Registered Professional Landman (RPL) or Certified Professional Landman (CPL)? In addition to four-year degrees in land management, most in-house landmen obtain their RPL and then CPL designations through continuing education programs. These are all crucial factors when evaluating an operator’s land department.
Questions About Investor Center Communications
Remember to consider the following questions:
- Will the operator maintain good communication with investors during the drilling process?
- Do they explain their decisions in the field? (Many joint operating agreements have nonconsent clauses. Sometimes, an investor or investment group may choose to no longer participate in certain situations. A good operator will always be transparent about their processes so that you can make informed decisions about your investment allocations.)
- Does the operator have a system to ensure timely production payment?
- How do they handle joint interest billing (JIB)?
How to Invest in Crude Oil
If you’re considering investing in crude oil, ask questions about the operator’s team and expertise. Then, consider where they are drilling and the legal side of the drilling project. Oil drilling is a complex process that requires a team of experts in various disciplines.