Investing In Oil Wells?

[turbotrip]

So just out of curiosity, I was wondering if anybody has had any experience with investing in oil wells in Canada? I have heard that some cheaper wells can be purchased for under $500k and that you can even buy into part of a lease for $20k and upwards and get a marginal passive income. But where would you look in order to purchase these wells (which brokers) and what kind of maintenance costs would one be looking at?
I know there are some people who just do this full time; buy a dying well, optimize it, and sell it for a profit. Any input or info would be great.


thanks

[desi112]

I would say at minimum you should be a Drilling Engineer, Geologist or Geophysicist to look into that kind of business.

[flipstah]

How does one 'optimize' a dying well? Its resources are depleted unless you're willing to scrape the remainders off.

[JfuckinC]

Originally posted by flipstah
How does one 'optimize' a dying well? Its resources are depleted unless you're willing to scrape the remainders off.

re-drill horizontal?

[flipstah]

Originally posted by JfuckinC


re-drill horizontal?

I was thinking SAGD it but sooo much $$ involved. Also you can't SAGD rock formations lol.

[Boat]

Originally posted by flipstah
How does one 'optimize' a dying well? Its resources are depleted unless you're willing to scrape the remainders off.

It may not be necessarily be depleted. It could be an issue of plunger lift optimization. But if it's not economically feasible to do so it essentially brings the conversation back full circle.

Edit: This is for a gas well of course, and the OP said "oil"

[turbotrip]

the engineering/technical side is covered (evaluating, optimizing, etc.), I was looking more for ideas on where the hell to buy the wells, or how to find a list of wells for sale. And also what kind of costs are associated with it to see how profitable it actually is.

[blitz]

"Dying" oil wells could just have low pump efficiency due to mechanical wear or a small hole in the tubing, or the perforations could be plugged off with scale, wax etc.

You would also have to deal with selling the oil and solution gas, operational issues, ERCB compliance etc.

[effingidiot]

Originally posted by blitz
"Dying" oil wells could just have low pump efficiency due to mechanical wear or a small hole in the tubing, or the perforations could be plugged off with scale, wax etc.

Or it can just be water/gas coning

[Euro_Trash]

Originally posted by desi112
I would say at minimum you should be a Drilling Engineer, Geologist or Geophysicist to look into that kind of business.

Lol at needing to be a drilling engineer

[blitz]

Originally posted by turbotrip
the engineering/technical side is covered (evaluating, optimizing, etc.), I was looking more for ideas on where the hell to buy the wells, or how to find a list of wells for sale. And also what kind of costs are associated with it to see how profitable it actually is.

The "technical" side you speak of should cover all of that. The people who do this generally have decades of experience and know how to do all this in their sleep.

This is like "I want to buy a race horse because I hear it's a good way to make money. Where would I buy a lazy horse for cheap that I could train to be a champion? What would said horse eat, and how do I train him?"

[Feruk]

Originally posted by turbotrip
the engineering/technical side is covered (evaluating, optimizing, etc.), I was looking more for ideas on where the hell to buy the wells, or how to find a list of wells for sale. And also what kind of costs are associated with it to see how profitable it actually is.

Companies will often put properties on sale. These will range from anything the size of one well to massive packages. You can usually find basic data on the websites of the brokers selling them. For more details (which you should always get, if offered), a non-disclosure agreement will be a requirement. Two such brokers that come to mind are Scotia Waterous and First Energy, but there are a lot of them out there. If you know what you want to buy, you can also make an unsolicited offer to a company who owns the asset.

On costs: In the data room (which you would get access to after signing a non-disclosure), you'd have access to the financial statements and be able to determine operating costs and netbacks. This may or may not include repair work.

Note that you are not equipped to handle ownership of a well or small property alone. Even the most basic case (owning a one-off well) still requires a whole mix of professions (operators, servicing if a rig is required or for optimization, accounting, taxes, marketing for your oil, landman maybe). Better to try to find something where you are not the operator of the well, but rather just own a passive interest. It'll give you a passive income, but you'll obviously still have to pay for any costs associated with your interest in the well (unless you own a royalty) or fall into a penalty position till the costs are paid off.

Here's the catch: Most assets will sell close to their net asset value. So unless you have some ideas for how to optimize the asset, you won't make much money. If you get land that's prospective for drilling a horizontal well and get a high interest, you still won't have the capital needed for your portion and wind up in a 300%-400% penalty position where you might never see a dollar from the horizontal. This involves deep pockets.

Also the assertion that you need to be a drilling engineer, geologist, or geophysicist, or have years of experience are all wrong. Best is to have a good background in production operations and knowledge of economics.

Anyway, feel free to PM me if you've got other questions. I've never personally invested in an oil well, but have been involved in hundreds of these type of deals from an evaluation perspective and can probably explain a lot of it to you.

[Euro_Trash]

^^ Well put. Listen to this guy

[ExtraSlow]

Also, owning oil and gas wells is a HUGE liability.

A company I used to work for sold a few producing wells for $1 just to get rid of the abandonment liability, which could potentially be millions.

Not an easy way to make a buck. Takes teams of skilled and knowledgeable people working 60 hours weeks years to make this profitable. I spent four years of my life optimizing gas wells, and it was a hell of a grind.

[lasimmon]

^^ Agreed. The liability just isn't worth it. Having just finished a $5 million abandonment, that would scare me too much haha.

[J-hop]

With gas prices the way they are why do you expect there are un optimized oil wells out there that you could pick up so easily??? Condensate and oil are what o/g companies are interested in with such low gas prices, they aren't going to leave even modest prizes of the higher hydrocarbon chain variety sitting in the ground.

I am 99.999999999% sure if you are legitimately looking for input from beyond you aren't ready for this (no offense). What is your background? Have you thought about what you are going to do with the oil once it is out of the ground? I'm pretty sure if a company sells a well the transportation agreement (ie: pipeline) goes out the window you you'll have to renegotiate fees etc (could be wrong)and I am going to go out on a limb here and say you have no legal team behind you. Do you have a good understanding of abandonment costs and at the current/projected oil prices and general op costs what your abandonment/sell cut off would be? Who will you have operate and maintain your well, I don't know your background but that isn't something an Joe off the street is qualified to do. So you'll have to factor that in, I'm assuming an operator can be over $1000/day.

As for the geologist, geophysicist, drilling engineer comment yea those would be the three disciplines you'd want to actually go out and drill a well. But once the well is drilled and completed those three disciplines would have almost zero input, you want someone who understands production because really that is all you would be looking at in the short term. Also you might want a completions engineer as well to help with optimization planning.

[Type_S1]

Unless you have an insane amount of money, which I am sure you and 20 of your friends could not scrape together, this isn't close to being feasible.

Companies don't sell 1 wellbore...they won't sell you a working interest in a wellbore either. The only way you are going to get an interest in ANY wellbores or mineral rights is if you buy them through an asset sale and you must also be a oil+gas company or have one hold this in trust for you.

You also need to understand where you are buying the wellbore, surface restrictions, operating costs, previous issues with landowners/governments in the area and the biggest thing when speaking about depleting wellbores is abandonment liabilities (including reclamation). In some areas of AB just to cut+cap a wellbore it can be over 500k, add on reclamation to this and your cost is massive.

Now if you don't own the wellbore 100% you are pretty much at the mercy of the operator because they can propose abandonment operations at any time forcing you to either a) participate in the abandonment or b) take over their working interest in the wellbore. Sometimes big companies will shut in a wellbore that isn't worth producing to them but to their partners it is...which would most likely happen to you resulting in a larger loss of $$.


I could go on for hours about how this is a retarded idea unless you are have a ton of experience in Oil and Gas and understand the operational, economical and legal side, but I would love to see you try it


As for advice on where to look...call Scott Land and Lease, Britt Land, Burks oil and gas and any other company specialized in acquiring or disposing of assets...there is tons.

[Type_S1]

Originally posted by J-hop
With gas prices the way they are why do you expect there are un optimized oil wells out there that you could pick up so easily??? Condensate and oil are what o/g companies are interested in with such low gas prices, they aren't going to leave even modest prizes of the higher hydrocarbon chain variety sitting in the ground.

I am 99.999999999% sure if you are legitimately looking for input from beyond you aren't ready for this (no offense). What is your background? Have you thought about what you are going to do with the oil once it is out of the ground? I'm pretty sure if a company sells a well the transportation agreement (ie: pipeline) goes out the window you you'll have to renegotiate fees etc (could be wrong)and I am going to go out on a limb here and say you have no legal team behind you. Do you have a good understanding of abandonment costs and at the current/projected oil prices and general op costs what your abandonment/sell cut off would be? Who will you have operate and maintain your well, I don't know your background but that isn't something an Joe off the street is qualified to do. So you'll have to factor that in, I'm assuming an operator can be over $1000/day.

As for the geologist, geophysicist, drilling engineer comment yea those would be the three disciplines you'd want to actually go out and drill a well. But once the well is drilled and completed those three disciplines would have almost zero input, you want someone who understands production because really that is all you would be looking at in the short term. Also you might want a completions engineer as well to help with optimization planning.

I agree with pretty much all of this. I would have to say this guy seems like an "average Joe" (in this field) with his limited knowledge presented in his initial post.

Get a completions engineer and a landman and you potentially have the expertise to have your well "optimized" (this is an extremely vague term) and maintained legally.

[lasimmon]

Originally posted by Type_S1
In some areas of AB just to cut+cap a wellbore it can be over 500k, add on reclamation to this and your cost is massive.

Interested in hearing about this, as I am involved in these all over the province.. Feel free to PM if you'd like.

[kaput]

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