Dear Investor, here are some things to look for, and prioritize as you examine an oil & gas offering, and some very important, and specific items to check-off, and look for and avoid as you conduct your ‘due diligence’, and evaluate any oil & gas private offering before you invest.
Ask immediately what the credentials and track record of the caller’s company is, or salesman are and while you are at it, ask what and where the proof is regarding the deal being discussed, what the many risks are, and what amount of money the company has made for others in the past. Get it in writing, and do some checking. It had better be in the memorandum which is the contract as required by law.
Make sure you are dealing with the Operator who is often the sponsor, or issuer, and can offer you a working interest in the program being offered, and it can be properly defined in the private placement offering. This is easy to check in each state. The Operators are on the hook to deal with both Federal and State Authorities, and other agencies; and Operators have both the authority to sell oil, and own the actual leases you are investing in to make money. Operators have a lot of responsibility and will generally give you more accurate information about the performance, and bottom-line in our industry.
Be wary of a turn-over or ‘TO house’ where a front-end caller qualifies you, and a ‘closer’ or someone identifying himself as the owner, and chief executive officer, president, or master salesman attempts to surgically remove your cash, or what I call doing the ‘two step’, or performing a ‘cash-lectomy.’ Ask for resume’s which can be checked-out, and look for consistent time in our industry. Be especially careful about anyone selling you something they can’t explain, or don’t really understand well. Be careful of the high emotion trap…don’t fall for it. If it’s good there is time to carefully consider, and come to a comfortable point prior to investing. Don’t let greed get the best of you. Profit margins can be low in the oil game, but tax write-offs are still very good, and the upside as assets are accumulated by a legitimate company become worth more money over time, as prices and demand go up.
Private and Industry drilling programs are hard to predict relative to funding completion dates, and drilling start, or finish points. No one knows what a prospective reservoir will give-up, or how long it will produce and do so in commercial fashion regardless of technology, or professional expertise. Costs including drilling, completion, and labor not to mention steel prices, are all going up in linear graphic lines and can be depicted on a chart or line graph with oil or market prices. Therefore, it is impossible to say with certainty how much, or when you will begin to make money.
Be wary of the pitchman who tells you ‘God Bless you’, your family, and your dog, etc. etc. I have never seen a company representative who talks about being religious or plays the religion card who is legitimate in my 28 consecutive years in the oil & gas industry. Sorry, it’s my opinion but it is based on experience.
Meet the people asking you’re for money, and make sure there is no ‘metal in their ears, nose, or tattoos unless they can prove they were once an enlisted man in the Navy. Check the private placement memorandums for ‘full & complete disclosure’ of their past history, and for unresolved problems with federal, or state authorities. If a company has been around awhile there can be violations, including ‘cease & desist’ actions but they must be explained in the PPM, and resolved. Lawsuits happen these days. It’s a sign of the times.
Start slow, with small amounts of money and diversify among companies. Consider losing your money for many reasons in oil & gas investing. Especially as the frenzy of prices continue upwards. Also look at oil index funds, public stock, and the majors…investing $10,000 with ExxonMobil 30 years ago would be worth a small fortune today.
Dennis