When it comes to this industry, answering the question of why this deal came your way should be very important. It speaks to an important underlying issue. This issue concerns any capital intensive project. There is also the issue of matching appropriate capital with the venture. People invest in oil well drilling. The appropriate capital comes from the investors that are educated in the art of the deal, investing in oil wells. The investors also understand the technical and legal issues at play. They are able to evaluate the risks properly. They can afford total loss of capital. When it comes to drilling oil and natural gas, it can really be a risky proposition.
Some experienced people do not see it as an attractive proposition. This is why it finds its way into the country club crowd. It looks for people who may not evaluate the risks with rigor. Oil deals fit the bill for a person who has plenty of money to allocate to riskier ventures. A person can get well very quickly. There are some risks involved in this industry. Here are a couple of the risks:
* People risks - This should rank first in line of the judgment calls that a person in the industry has to make. The proposed operator should be well experienced and needs to have operated in that area. There is also a question of if there is an extraordinary environmental exposure or if the company is financially stable. The insurance is also something that needs to be addressed.
*Mechanical risks - It is not easy to drill a hole thousands of feet deep and cementing steel casing in it in the exact spot. Outfitting it to bring the precious hydrocarbon to the surface is not an easy task either. This is done on a daily basis. A bad cementing job can allow natural gas, oil, or water to channel behind the casing. These things belong inside of the casing. Sand screens are demanded by reservoir attributes sometimes. Sometimes they demand specialized chemicals. These chemicals are not friendly to steel pipe when combined with temperatures surpassing 200 degrees Fahrenheit.
There is a lot that can wrong mechanically. This can occur between the beginning of the drilling and placing the check in the bank. The layman does not have a way to mitigate mechanical risk once the project has started. You will be depending on the expertise of the operator and his drilling contractor that was selected.
If you have any questions about oil investing please feel free to call Glenn Texas Oil anytime at: 1(888) 406-1734.