Mon Jan 28, 2008
'Investing in the Best Oil & Gas Investment Models '
Investing in Oil & Gas private deals is well worth considering when you compare other options to making money in passive investments, or any other investments I know of that still have very good, and legitimate tax write-offs. There is ain investment strategy using a model I've proven to work, and have been using it for 20 years. http://www.oilandgasinvesting.com
Investing in fully diversified, and risk managed investments directly with oil & gas operators, and small independent oil companies may still be the best way to go to make money in oil & gas. By investing with issuers, and oil company principals, you can enjoy the biggest upside, versus investing with those 'heavily promoted deals' which are usually offered by people not directly in the business of operating, or developing oil & gas properties. I'm talking about the boiler room operations, whereby the people selling know little about the business they are offering working interests, or equity ownership, or they are simply 'johnny come lately's, looking to capitalize on high oil & gas prices. Where we these folks when prices were at $10 per barrel at times in 1983-1984? This is when I started in this industry...as a contrarian, and made money for investors then, and certainly can now.
Investing in oil & gas seems to be a secret to many investors. Many people just don't undertand we use oil for just about everything we make. We will be doing so 20 years from now as well. You might as well profit from this truth. We often see new break-throughs, and discoveries occuring in the oil patch, and we find better ways to go about finding oil & gas and working-out new completion techniques all of the time. The truth of the matter is the oil & gas investing bargains are out there, but you must know how to find the opportunities that can stand the scrutiny of any serious due dilligence.
I like to know the company I'm doing business with purchased their oil & gas properties they operate at well under market prices. I also like to see a company provide an inventory, and equipment list, which allows you to easily compare, and determine the fair market value of their company equipment & physical assets, and net assets. I want to evidence of area production, and a history of successful development operations in an area...unless of course you want to go exploring, which of course has it's place. Obviously, this is a more risky, but necessary side of our industry.
Establishing a value of oil & gas net assets for re-sale is based on appraising the fixed equipment, and physical assets, plus 'present cash flows', as well as the 'proved producing', and 'proved un-developed reserves, or what the 'recoverable reserves' are likely to be. Price is also key. You have the best assurance of accurately determing the net asset value when an appraisal is performed by a licensed petroleum or professional engineer. This would be an appraisal acceptable during a bank review to determine value, and would make an exit strategy easily accomplished in the marketplace when selling oil & gas production, or electing to take a company public as an exit strategy' to provide liquidity for investors. I have sold oil & gas properties using appraisals, sales to private, and industry partners, and using stock sales, and bank cash-outs of investor equity. http://www.info@tcc5.com
Providing an exit strategy for selling oil & gas assets when investors are investing in private oil & gas direct participation investment programs is a must in my book. This means doing business with privately owned independents who own 'controlling interest' in the oil & gas assets they manage & operate. I like 100% of the working interest to a net revenue interest land owner as the best 'postion', or 'posture' to hold. A company must decide to structure oil & gas deals at the inception of their development plan, in order to someday sell to industry partners, or package net assets for sale, for example, in a public auction, or by taking a company public. http://www.energynet.com
Its your money, and you can do what you want with it of course. Losing money, or your capital is no fun. Having your money, or your profits taxed away isn't either. Keep in mind conventional thinking isn't always the answer. You must get comfortable with uncertainty, and develop some patience when you are investing in oil & gas private deals. It takes some time to fully realize all of the benefits associated with oil & gas investments with private independents. However, your upside can be much better than with public companies, especially when you consider the tax write-offs, and the exit strategy provided for liquidity.
How can you find the companies who will help you succeed, because it can be harder than you think? Better results are achieveable when the investor is willing to do his homework. Track records and time in the business are important, but I think the most important elements are... the 'model' being used, the structure of the deal, and the manner in which the company spreads-out the risk, and provides the amount of diversification required to keep from losing your principal. I also think having an 'exit strategy' is a must today. This allows the investor some degree of comfort, and means the liquidity is available at some point during the investment holding period. The main reason for having an exit strategy other than to provide liquidity, is to be able to sell when 'lease operating expenses'(LOE'S) get close to matching or equaling your profit from the sale of your production revenue. You want to be able to 'exit, stage left', when nearing your break-even point after finishing, or completing your development plan.
There are some good independent oil & gas companies out there doing a great job at making investors money, and they can be trusted to do the best job possible while doing the work needed to achieve a successful outcome with oil & gas investing. Here is my blog site with Google. I offer some advice, and from time to time provide some helpful links you can use during your research and while looking to find-out who to invest with in oil & gas private programs.
http://www.americanenergydevelopments.blogspot.com/
Finally, look for, and people who love the oil & gas business, and have a real passion for it, and most particularly enjoy the feeling they get when making their investors money. Accessing the best minds in the oil & gas world is an important requirement to consistently making money, however, even the little guys can score when the big boys don't. Actually, there has been more oil & gas found by independents than by the 'majors'. Nothing is free in this life, however, my advice is to do your homework, talk to people in the business, and no matter what you decide, spread-out your risk by diversifying in many wells, and with more than one company no matter how good their deal looks & sounds. Dennis W. Stutes, CEO American Energy Developments.
P.S. Quote of the day. "Short term moves in the market are like tales told by an idiot!" Shakespeare
Contact me by calling 408 975 0800 or my cell at: 805 701 7761 americanenergy@gmail.com or my direct email address at: dwstutes@sbcglobal.com
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Fri Jan 11, 2008
'Investing in Oil & Gas Private Versus Public Company Deals'
Investing in only the 'best oil & gas drilling programs' which are correctly put together, and then doing so with US private independent companies who can offer investors an opportunity to get far more cash flow than is possible when owning public stock is the key to making money while investing in private oil & gas programs.
Oil & gas investors can invest and own a big majority equity working interest in a private oil & gas program, while legitimately enjoying tax write-offs, which legally allow you to write-off more than your entire investment in just a few years after making your oil & gas 'direct participation investments'. The 'passive loss rule' still on the books allows you very favorable tax treatment by the IRS, and lets you lower your gross income for tax purposes, and do so with your portfolio or passive income, as well as your active, and ordinary income. It's a great deal, check it out.
If you invest with public companies they take the tax write-offs...strike one.
If you invest with public companies they offer a much smaller equity ownership interest...strike two.
If you invest with public companies you only have a very small portion of an equity appreciation they can establish by constantly funding, and developing on their time table, which is usually at least 5-10 years and normally much further out...strike three.
If you invest with public companies you must deal with the stock markets, and the uncertainty, and enormous number of variables which affect the value of their stock. I just saw a statistic yesterday, the market has only gone up about 3.8% during the past 10 years based on the close yesterday. Isn't this a terrible return?
When you invest with a private oil & gas company, or with an oil & gas operator who controls the majority ownership in the leases you invest, you have the opportunity to profit immediately from new discoveries, and get your share of the cash flow from new production, and greater 'recoverable reserves', and in successful wells this return can be very substantial...you are now on base with a single.
When you invest with the right private oil & gas company having an 'exit strategy', liquidity is provided when the oil & gas independent company sells or flips the net assets at an 'online auction' such as what people do at: http://www.energynet.com You have hit a double.
When you invest with the 'best of the best' independent oil & gas companies having an diversified investment model which fully spreads-out risk, and the company has a fully diversified portfolio of multiple oil & gas leases, and acreage, and with both... oil & gas wells, and pipelines, plus the company has an up and running infra-structure to support the production revenue being sold, then you have a better shot at success while investing in oil & gas...you've hit a triple.
When you invest with a group of professionals who are not only highly experienced and are in the habit of maintaining a 'lean & mean' overhead structure, and they like completing, or finishing what they start, then you are dealing with people on the right track. Independent oil & gas companies who 'year after year' are 'consistently' acquiring & developing oil & gas assets, and are always fully committed to help you succeed as an investor help you get a home run.
Call or email me with questions, and to find-out how to find an investment meeting the criteria discussed in this email. If you would like to review a current update to my investors, and prospective investors follow the Google blog link and click on American Energy Developments at: http://www.blogger.com/home
Dennis W. Stutes, CEO Direct email address: dwstutes@sbcglobal.net
American Energy Developments americanenergy@sbcglobal.net
Ofc: 408 975 0800 Cell: 805 701 7761
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Tue Jan 01, 2008
Investing in Oil & Gas or Stocks & Real Estate?'
Investing in oil & gas ought to be 'intellectually' a no brainer these days. This is especially the case when investors are comparing or trying to measure what their upside is or their prospects for making money are as a passive investor when investing in stocks, or real estate this year.
Analysts at Fox News reviewed our past year end performance numbers for the NYSE stocks, DOW, and NASDAQ as of the end of 2007. According to the analysts at Fox News yesterday the stock market did 6.4% last year, and NASDAQ a bit over 9%. However, also mentioned was when comparing this past year's performance with the stock market highs of seven years ago, there has been no gain. During the same analysis a comment was made that real estate values are at or near their 52 week lows.
If the total inflation of our economy is say 10% per year, and your money is now worth less and less due to: increasing taxation, and higher living costs, balance of trade deficits, the weaking dollar against international currencies, and huge government spending...then what are your options if you are presently on a fixed income, or might be soon? What if you are not on a fixed income, but don't want to see your money taxed away for dubious or ridiculous reasons? You will need to exceed a 10% yearly return on your investments to stay ahead of inflation, and have what you need for retirement.
Remember, there are few good tax breaks when you invest in the stock market, and real estate in most cases is an 'active or hands-on process'. You must maintain your real estate, and be attentive. You will often discover when you sell, the returns are not as good as you thought they were going to be, especially when you factor-in the time you spend, and the expenses you incur to own your real estate.
I know where you can invest in oil & gas private offerings and get immediate cash flow while writing-off most of your investment in the first year you invest. By diversifying in many oil & gas wells, and oil field net assets, including pipelines, and acreage, you can control a highly diversified fractional working interest ownership; while you are able to sharply reduce the capital risk, or risk of losing your investment. The upside is tremendous, and exciting at today's prices for both oil & natural gas. This is certainly the case when an oil & gas company has already acquired it's assets at a fraction of what they are worth at today's oil & natural gas prices, and especially so when you consider the 'recoverable reserves' in key oil & gas producing areas are now worth millions more than just a year ago. Take advantage of the truth I'm telling you now exisits in certain oil & gas investments being offered by the well positioned companies in the business.
The bottom line is, smart, and flexible money knows we are going to be reliant on oil & gas for many years to come. This is regardless of how much we conserve, or explore for other replacement methods of supplying our increasing energy needs. Other countries will continue to rely on oil & gas as their principal energy source, and we won't be able to stop them. Ethanol replacement adherants are perpetuating a scam, since point blank, it takes more energy, and creates more waste to grow, harvest, and process corn to turn it into ethanol than does oil & gas, by a long shot. Don't 'hook-line & sinker' buy into the alternative energy investments which may never be scalable, or practical enough to replace oil & gas in the foreseeable future. In other words don't buy-in to the emotional nonsense talk of many of the global warming types. Make money when you invest in oil & gas investments, and enjoy filling your gas tank with whatever cars you want to own and drive.
If you would like to explore the possibilities of making 10 or more times on your money as a passive oil & gas working interest investor within the next several years, and want to lower your gross income for tax purposes, while legally writing-off your investments in legitimate oil & gas drilling programs, just let me know by email, or telephone.
Dennis W. Stutes, CEO American Energy Developments. americanenergy@gmail.com dwstutes@sbcglobal.net Ofc: 408 975 0800 Cell: 805 701 7761
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Fri Dec 21, 2007
'Investing in Oil & Gas this Year'
Investing in direct participation 506 Reg-D private placement oil & gas investment offerings offered by small oil companies or directly with oil & gas operators which allow you to take advantage of the many federal tax write-offs is smart, and just good business at this time of the year. This is especially true when you need tax write-offs, and want to lower your gross income for tax purposes. So is making money in a well thought-out, and fully diversified program or in an ongoing cash flowing project.)
Now, if you happen to find a well diversified, low risk oil & gas project that is currently producing, and it also has loads of upside, plus is nearly fully funded, would you be interested? What if a majority of the development plans have already been executed, and the project is nearly completed? Would you like to know about such a project? Contact me at the email I provide you, or give me a call if you would like more information about a project I'm convinced will continue to do quite well, and is a project having tremendous upside to boot.
Finding good oil & gas prospects is a function of super sleuthing, or knowing who the inside field contacts are, and having great net-working skills, and follow through. You must be very determined, and persistent to find the 'nuggets' and best opportunties worth pursuing in our industry. Then, you must stay the course until you get the pay-off. It's not easy, and if it was everyone would be doing it.
You don't want to deal with new kids on the block, just because oil & gas prices are high. It takes a lot more than high oil & gas prices to make a profit in our business. IF you don't know the oil field mentality, and you don't have experience at dealing with the sub-contractors you will get your head handed to you.
The big brokerage houses learned at considerable economic expense in the 70's & 80's, the fallacy of putting big money into oil & gas without knowing the right people, and the 'lay of the land'. You need to operate as do the small, but highly trained 'teams', as they say in special operations, such as what the Navy S.E.A.L.'S do, to control the many variables that can bite you if you don't do the research, and planning for a successful operation. It's the same when you develop any oil & gas assets.
If you would like to hear more, or get started, please provide your contact address, phone number, and email address.
Call or email me with any questions about oil & gas. Dennis W. Stutes, CEO, American Energy Developments americanenergy@gmail.com dwstutes@sbcglobal.net Ofc: 408 975 0800 Cell: 805 701 7761
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Wed Dec 12, 2007
'Investing in Oil & Gas Private Programs'
Investing in oil & gas drilling projects being offered by private companies is usually like investing in a small business. My preference, for many reasons, is to invest in a Limited Liability Company (LLC). The advantages are you can be a passive investor yet still take the generous federal tax write-offs which are still available with our current oil & gas tax codes.
Beware, as believe it or not, some accountants, and CPA's are not familiar with the big tax write-offs you can take in oil & gas drilling programs. Talk to CPA's or tax preparers who can intelligently discuss oil & gas tax write-offs. Professionals often say no, as it is a safe position to take relative to evaluating any investment. They charge consulting fees, and bill by the hour, but their big fear is if they recommend an investment, and it doesn't make you money or perform well, they risk losing you as a client. Most won't do this. Therefore, you must do your own homework, and invest only what you can afford to lose if things go South.
What's pretty important is coming to grips with the risk you are going to be taking with people you don't know when investing in oil & gas, however, at some point during your 'due dilligence', and review of the private placement memorandum (PPM) which must contain all of the pertinent details of an offer, you need to arrive at the point of feeling comfortable enough to invest at some level. I haven't seen a deal yet that doesn't allow you to invest in smaller increments. If you cannot do this, don't invest in the oil & gas program.
The main reason to invest is because of our current tax advantages, and write-offs associated with making investments in 506 Reg-D programs. This can be another way to hedge your portfolio and reduce your gross income for tax purposes at the same time. It also allows your developer, operator, or oil company time to fully develop the oil & gas assets they've targeted and are described in the PPM used to provide a mechanism for investors to invest.
I have noticed lately some investors who are looking to invest, but tell me they know little about the oil & gas business. This can be a problem, since learning everything about any business is hard to do in a short time. Investors can approach investing in essentially one of two ways. Learn everything you need to know which could take an inordinate amount of time & effort for example, or simply invest an amount of money to begin that isn't going to cause you to lose sleep at night.
It takes time to make an oil & gas project successful...and the more fully diversified, and more complex deals with more wells and profit centers, usually take longer to complete. However the downside is minimized, and the upside is assured or is better than investing in a new 1-2 well drilling program for example. This is true because your downside is spread-out relative to risk. You still get the tax write-offs in any drilling program where a K-1, or 1099 is provided you by the company you are investing with at tax time each year.
Call or email me to find-out more, and to take advantage of the investing opportunities in oil & gas drilling programs at the end of the year for tax write-offs.
Dennis W. Stutes, CEO, American Energy Developments americanenergy@gmail.com dwstutes@sbcglobal.net Ofc: 408 975 0800 Cell: 805 701 7761
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Tue Dec 04, 2007
'Investing in a Currently Successful Oil & Natural Gas Production & Development Program'
Investors who like making money need to without delay contact us at our private oil & gas company prior to the end of the year. We're now closing-out our funding for a current oil & gas private direct participation program we've been funding during the past year. We have current production, which is increasing dramatically as a result of making new acquisitions, and because of our extensive development & new drilling we've accomplished during the past year. We are making revenue distributions to our investors each month now.
We have more drilling planned during the first quarter of 2008. Investors who like to invest at the end of a funding period in a successful private oil & gas program have the opportunity and can now take advantage of the successful efforts of our staff, and fine tuned field operations we've established during the past year.
We have acquired, because of our careful negotiations at prices well under value, a very good collection of producing oil & gas leases in several areas of the country. Our extensive past experience and as a result of performing a lot of prior 'due dilligence' made this possible. Because of our considerable amount of preparation and work, our revenue returns to investors is expected to soon exceed all or most of the current programs I've checked-on, or heard about recently.
The chief reason we've been able to attain our present performance, and reach respectable and increasing revenue distributions to our investors, and now increasing pay-outs to our investors is because we kept, and keep our overhead costs down. We find leases and structure our private oil & gas investing programs to pay a majority of the working interest to our investors. We don't charge promotion or advertising costs, and cannot charge commissions, since we own our private oil & gas company, and rarely need to work through sales organizations, or selling brokers. This makes a big difference relative to the amount of net revenue you can pay to investors.
If you are looking to invest in oil & gas before the end of the year, and want to take advantage of the tax advanatages, and start making money right away, let me know. We would like to show you what's possible in this industry.
Dennis W. Stutes, CEO, American Energy Developments email: americanenergy@gmail.com dwstutes@sbcglobal.net
Calls: office 408 975 0800 Cell: 805 701 7761
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Tue Nov 20, 2007
'Investing in Oil & Gas for largest Returns Possible'
Investing in direct participation private oil & gas drilling programs can make it possible for investors to achieve big first year returns, and even multiples on their money after some new oil & gas wells are drilled, completed, and hooked-up. I have recently run numbers on both current completions, and historical records in select mid-continent areas of the US where I'm familiar. I've also been looking at historical records in a few areas of the US where returns at present costs can exceed more than 20 to 1 because of today's prices of oil & natural gas.
You can sit on the sidelines, and lose money in the market, or real estate for awhile, or get involved with the right private oil & gas operators, and smaller companies now developing oil & gas leases in certain lucrative areas where risk is very manageable. These same companies have often acquired their acreage, and oil & gas leases at much lower oil & gas prices then we see right now, and in some cases, for less than half of current prices.
It doesn't hurt to diversify in private oil & gas drilling programs, particularly if you need big tax write-offs, and you can afford to take some risk to boost, and hedge your portfolio returns. In fact, the big first year tax write-offs alone can warrant investing in private oil & gas programs for those investors who have yearly incomes exceeding six figures. Tax write-offs can also be taken against active, ordinary income, and passive income while reducing gross income for tax purposes. Investors get accelerated depreciation, and 15% yearly depletion allowances on income they receive from their oil & gas wells until they receive their money back. The 'passive loss rule' still favors oil & gas investors.
If you want to hear more, and would like to discuss some options when considering oil & gas investing, just call or email me.
Dennis W. Stutes Ceo, American Energy Developments americanenergy@gmail.com dwstutes@sbcglobal.net Office: 408 975 0800 Cell: 805 701 7761
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Thu Nov 15, 2007
'Reasons NOT to Invest in Private Oil & Gas Drilling Programs'
Dear Investors,
After 25 years of working dilligently to make investors and myself reasonable profits in the 'niche' we call the private company oil & gas investing business I've come to a few inescapable conclusions about why you should or shouldn't invest in direct participation, or private company oil & gas drilling programs.
First, I'm going to do my best to communicate to the point, and give you my ten best reasons in paragraph form for why you should not invest in small company private oil & gas deals under the provision of and utilizing 506-Reg D federal rules.
1) If you have no idea what constitutes 'risk' versus 'reward', when investing or you don't understand the risk pyramid...don't invest until you do, and can accept the investment world's advice about allocating your money, and how and where it should be invested...based on the prudent, and intelligent investor's 'risk tolerance model', which is well known in financial circles, etc.
2) If you are a person who wants to invest as a 'passive investor', and you want to make money quick, and fast, and you want someone else to help you make money, and you cannot afford to lose any part of or all of your money you are investing in oil & gas, and don't understand being 'long a security', and are not aware of, or intrinsically know; that 'good things happen to those who wait', and you 'don't have appropriate patience' when investing in private deals, don't even consider investing in private oil & gas drilling programs.
3) If you don't need the substantial federal tax write-offs available for oil & gas drilling program investing, and don't presently understand what constitutes being a 'sophisticated', and/or 'qualified', and 'accredited investor', and know what it means according to, or as defined by present securities regulation definitions, don't make investments in oil & gas drilling programs, unless you are doing so with an amount of money you can afford to lose, and your life style won't change a wit!
4) If you do not know the difference between a business deal where-by you can acquire a 'equity working interest ownership' in any business, or asset being offered; or in the case I'm providing, which is oil & gas drilling programs that are organized, and managed by small oil & gas companies, then you must learn what equity means. Oil & gas equity investments may or may not pay you consistent, or steady monthly production revenue. They don't pay dividends, or fixed returns! Usually, you must wait for developments to be completed, or a sale of the oil & gas assets being developed in order for you to make the returns investors look for when making oil & gas investments. The other type, or category of investments are 'debt instruments', or 'fixed return' investments such as CD's, money market funds, or different types of bonds which pay coupon interest, or treasuries for example which can also be sold at maturity for what you pay for them plus interest, or in the secondary market for cash, and for usually at least the face value, unless discounted, or again, for it's coupon value for example at maturity...don't invest in oil & gas drilling programs until you do know the difference and what to expect with each type of investment...equity or debt.
5) If you don't understand what businesses need to succeed, or appreciate the ways small companies need to capitalize themselves during their growth, and development phases, in order to get a pay-out at some point in the company's history, then find-out! Most businesses in the United States are small businesses, and they have their unique and many problems to overcome while trying to be profitable.
6) If you cannot find someone you trust, and plan to be with in an investment for the long term, in a fully diversified oil & gas program for example, where disappointments will and do occur while the company does it's best to achieve a successful outcome for you and itself, then wait until you know what to expect in a business relationship, or wait until you do develop the emotional, and business maturity to invest over time, and not to succumb to a 'get rich quick' philosophy, playing the lottery, or gambling system...which is usually what causes an investor's grief when things go south. I've always had more problems with the smaller $10,000 investor rather than the $100,000 investor. This is based on how people get to the point in life where they are successful, and truly understand risk/reward. If you can't take the risk, don't expect the reward, and certainly don't look for 'guarantees'. Governments and politicians attempt to convince you of what they will guarantee you. Apparently, to make a point, only 11% of the population believes congress these days.
7) If you don't want to learn about our industry, or accept certain key elements about what oil & gas companies are challenged with today in business, and like never before in the US today, don't invest. labor, contract services, and equipment pricing move with the market upward. This takes away much of the apparent profit you can make with high oil & gas prices. We can still be successful, however, we have far fewer active drilling rigs than in the late seventies, and early eighties. We have very few competent professionals, and field workers now in our industry compared to the old hey-days. Competition for qualified industry workers can be fierce. We find ourselves having to work with people who we wouldn't have hired in our business if we were hiring them 25-30 years ago. Our best people, and the 'old codgers' are retiring, are sick, or getting complacent, and the young folks don't want to work week-ends now.
8) Making money is best done the old fashion way or 'slow and steady' unless you are a rock star, or plan to be in the entertainment business. There is a book called the 'Millionaire Next Door'. Get this book and read it, and you'll discover most of the millionaires today are families who make it over the long term, own their homes, and own businesses, acquire assets, save and invest, and wake-up after 30 to 40 years in the family business with a little money. Be one of these investors, and relative to oil & gas, keep your investments diversified, know the people you are doing business with, and hang-in there for the pay-offs, or be prepared for the loss if it occurs. You can successfully hedge your portfolio while making diversified investments in well conceived private oil & gas deals, but you need to be very careful to do it.
9) If you require liquidity, and must have it whenever you want it, don't invest in private oil & gas drilling programs.
10) If you are planning to run to 'big brother', or someone to make you whole when you lose any money in a legal, and legitimate oil & gas drilling program, or become frustrated because you cannot liquidate your investment any time you want, don't invest in oil & gas private deals. If this is your plan, please avoid our industry. Save us all the grief, lawsuits, and expecting the government to bail you out. All legitimate oil & gas companies today must pay securities attorneys to review to determine legality of any offer made to the private, or public investor. Attorneys usually write the private placement memorandums (PPM's) which must have everything about an oil & gas offer included to be in compliance & legal, according to both state and federal laws. This is true whether a company is operating under an exemption, when dealing with private investors, or is offering a security to the public. Operators, and oil & gas companies must pay filing fees to file the appropriate documents to meet the federal and state requirments to offer 506 Reg D PPM deals. Thanks, Dennis
Call me with any questions, or comments...
Dennis W. Stutes, Ceo American Energy Developments. Emails: americanenergy@gmail.com dwstutes@sbcglobal.net
Office: 408 975 0800 Cell: 805 701 7761
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Tue Nov 13, 2007
'Investing in Oil & Gas Based on Cash Flow & Costs Versus Recoverable Reserves'
Investing in oil & gas programs based on reasonably projected cash flows, and true costs, plus getting recoverable reserves out of the ground in timely fashion are extremely important questions to get answered when evaluating any oil & gas investment program.
Here's why. Making money in oil and gas isn't about how much a company can establish in barrels of oil per day, or thousand cubic feet of gas (mcf's), or barrels of oil per day of equivalent production (boe). Exxon for example just breaks even on it's production, however it makes lots of money with it's lease holdings, licensing arrangements with other companies developing on Exxon acreage, and it's pipelines, refineries, and retail out-lets, etc.
Making money as a small producer is far more about keeping it's costs and over-head low. A more important, and critical question to find-out, is what percentage of the 'lifting costs' 'production costs', or recovery costs there are to find commercial quantities of oil & gas and then be able to market them in any given deal. If you can establish a true lifting cost of say $5.00 per barrel of oil and the price is $100 per barrel, gross profit looks attractive, and you can do the math pretty easily. You have a nice multiple on your capital invested...or do you? Continue reading to determine if this spread in cost, and gross sales revenue is enough to justify doing an oil & gas deal, and thus getting a fair chance to be successful as a private oil & gas investor.
The most important considerations an investor ought to look at are; the 'total costs for each well', plus the infra-structure a company must build to exploit the oil & gas being targeted, such as pipelines, or gathering systems needed to market your gas for example, just to name a few important considerations. Certainly the 'time' it takes to evaluate a potential oil & gas target, and then fund, drill, and complete a new well, and finally hooking-up an oil & gas well which is going to be commercially productive are just some of the key issues & concerns any investor should have, and where a good portion of the effort should be spent by every company when looking for oil & gas. Two years is probably an average time line to bring a successful oil & gas program to fruition. I've accomplished it and seen it happen sooner, but this is a reasonable time for an oil & gas drilling program to work. Circumstances are different for every company, but I get worried when some sort of activity and success doesn't occur after two years. Just remember, you do get substantial tax write-offs during your waiting period. Most, if not all of your capital invested is going to be written-off during the first two years you hold the oil & gas investment.
The most important question any investor should determine when evaluating any oil & gas drilling program is to find-out what percentage of the gross the investor is going to get after all deductions. Deductions will be taken out for royalty, or landowner overrides, lease operating costs, and the management, and in most states, but not all, the 'well-head' tax. Once you arrive at the actual percentage you are entitiled to in an oil & gas deal, you can start calculating what you may receive, IF, and only IF the assumptions by the oil & gas company you are planning to invest are correct. I'm talking about projections of production, recoverable reserves, and value of the net assets after the oil & gas company completes it's development plan. This takes some study, and by the way, if this is too hard to gleam from the company's private placement memorandum, or there seems to be reluctance to get into the numbers by sales people, or company officials, just avoid the company. It's just too hard to properly evaluate an oil & gas deal when a company is being too clever. If it's too hard to figure-out, don't invest.
You must find-out something about production history in a targeted development area where a company is planning to drill for oil & gas. State county offices have this information about all of the wells drilled in their county. Research with the state production records can be very revealing when comparing these results with what a promoter is telling you is possible. The reservior qualities are studied by geologists, and petroleum engineers among others in our industry. The geologists are lovers of rock, or oil bearing sands. They are the 'dreamers' in our business. The petroleum engineers are the 'top of the food chain', or most practical in our business. PE's want to know about downhole pressures, decline curves, porosities, permeability, and a variety of indications of what an oil & gas well will ultimately produce, and what recoverable reserves will be found. Banks hire PE's to do reserve studies, and banks typically discount by 50% the reserves the PE's estimate when evaluating oil & gas properties as part of their due dilligence when making loans on oil & gas production being sold.
Getting answers to all of your questions are super important when you are trying to get to the bottom line when deciding to drill for oil & gas. Remember, you are trying to decide if the company providing you with information is going to be able to establish production revenue, and recoverable reserves, all while effectively managing costs, and not letting the time-line to achieve production goals get away from them. You rarely hear discussed the 'time value of money', or receive 'internal rate of return' calculations when evaluating most oil & gas deals. Reporting, or the lack there-of can also give you a valuable clue as to how organized, and good a plan the oil & gas company has to find oil & gas reserves. If management can't be reached, after you make your investment, and you rarely hear from them, this is almost always a bad sign.
It's real exciting to talk about finding big oil & gas reserves. Promoters, and industry people typically use six color print, and pretty pictures and geological cartoons showing wonderful diagrams, anomalies, or structural closures, and traps which you are led to believe are going to be found containing massive amounts of oil & gas, and when found this is how you will subsequently become rich. 3-D seismic has been the big buzz word for awhile now, but this simply quantifies, and maybe cuts the risk of drilling a marginal producer, or dry hole. You still have to establish production with a successful well at a reasonable cost relative to the eventual commercial production you'll receive. Another point, can these so called big, or gigantic reserves a company thinks it is sitting on, be recoverable with the 'specific development plan' they offer and at the cost you will be required to invest to participate, to achieve the results being projected? The reserves might actually be there, but would you have to spend 100 million for 10 million in production to get there?
I've seen many companys over the years play the game of bragging about the oil & gas reserves they expect to find in a given area. These companies either don't realize what they are talking about, aren't telling the whole story, or the people it hires to try to sell you are choosing to ignore telling you as investors... they only get to tap a small amount of what is likely to be recoverable from a single borehole, even when the drilling attempt is successful and no substantial and serious technical problems are encountered.
When you do the math based on true development costs the results can be shocking, and you can rapidly conclude the profits will never exceed the costs in deals where production cannot be established cheaply enough. This is magnified over time when it takes a long time to recover the primary production from a successful well. Lease operating costs, re-entry, and work-over costs can eat-up the profits in a marginal producer. This is my pet peeve actually.
I've confronted those individuals on many occasions promoting deals and using the top performing wells in the entire county, while inferring, and drawing conclusions about an outcome in a deal they are offering. Take the average production you get from county records for the exact type of well being considered, take in to account today's costs, and then see what you get. You will be shocked. Call me to go over the numbers in a deal you are considering.
By the way, the deeper you go to get the bigger reserves, the greater your technical risk to get to the finish line with a successful oil & gas producer. The fewer oil & gas wells you drill in a given program where investors can participate as a collective group owning fractional working interest ownership...the more difficult it is to make investors money, unless you are a big believer in luck. The reasons are many. Diversification is a must in my opinion, and this means investing, or receiving a relatively big 'working interest' in many profit centers, including mulitiple oil & gas wells, and pipeline revenue, etc. The really important thing in my opinion, is you need relatively low costs to establish production revenue, while 'booking' legitimate recoverable reserves of oil & gas. This is the challenge and the 'rub'.
THIS IS THE KEY! Investors ought to be getting a relatively large percentage of the 'pay-out' in a private oil & gas deal, and know the development costs are not too high to achieve an oil company's projected profits. How do you determine this in advance of making an investment? You either do your homework, or get someone who has no axe to grind, isn't afraid of losing you as an advisor, if you are his client, and isn't another competing company asking for your money.
Let me show you some math, and illustrate one idea of what I'm talking about. Let's say you find, and consistently establish 100 barrels of oil per day (bopd), or it's natural gas equivalent (boe). Let's say you spend $3,000,000 to establish 100 bopd. Using $95 oil, and multiplying by 100 bopd, times 360 days, or an oil year, you arrive at a gross sales revenue of: $3,420,000.
NOW, let's further assume you can spread the $3,000,000 cost out among 30 or more oil & gas wells in a well diversified program of oil & gas wells. Okay, you are spending about $100,000 per relatively shallow oil & gas well including all research, technical costs, management fees, infra-structure, pump jacks, tank farms, disposal wells, injection plants & flow lines, roads, electrical hook-ups, etc. etc. I could to a point use any number of wells based on a hypothetical oil & gas drilling program's cost. But in the case I'm using, this means an average well needs to be producing 3.33 bopd. Do you believe this would be 'easier' to achieve and sustain over time, than trying to find a single well doing 100 bopd, or two wells each doing 50 bopd? (I do because of my 25 years in the oil & gas industry.) What about the risk of drilling 1 or 2 wells with the requirement of getting 100 bopd between the two wells?
OKAY, now let's get to the really important stuff. If you can invest in an oil & gas program where you receive 60% of the gross revenue, after all deductions are taken out, the numbers can get real interesting. So, we go back to the gross revenue of $3,420,000 based on mulitplying 100 barrels of oil per day (bopd) times $95 per barrel of oil times an oil year with 360 days. Now mulitply .60 times $3,420,000 or the total gross revenue to get a yearly $2,052,000 net revenue, or a 68.4% unweighted yearly return. If you factor in the 85% to 90% first year write-off for intangible drilling costs (IDC), and dividing by .65 you can get an adjusted, or weighted rate of return of about 105.2% based on a maximum marginal tax rate for example. Typically, you get about $35,000 in direct reduction of your gross income for taxes based on an investment of $100,000 in oil & gas. You must consult with a knowledgeable and experienced tax professional to tell you how this all affects your particular tax situation, and what write-offs you can take, or carry forward.
If your tax preparer, CPA or broker, or any other advisor you are using doesn't have a familiarity with the current oil & gas tax code and write-offs, the oil & gas deal you are considering; or won't personnally discuss their opinions with the oil & gas company you are considering, either don't use them as advisors for your oil & gas investments, or in the case of the tax questions, get a different expert who has the experience to handle the relatively simple tax form needed for you to take your legitimate oil & gas tax write-offs. You can lower you gross income for tax purposes with an investment in oil & gas drilling programs. Make sure you have advisors who aren't afraid to lose their job...or your business when you ask them for oil & gas tax advice. Remember, CPA's, attorneys, and other 'so-called advisors' are not experts at knowing about a particular, or specific oil & gas deal, they don't thoroughly review, or further, they won't take the time to evaluate a proposition unless you hire them to do so...they will only know about the bean counting part, and the legal part, or in the case of 'well meaning friends', etc., they just want to be right. Remember, they are right if you win, and right if you lose, simply, because they are on the fence, and it isn't their money, or risk. However, if you are successful, you won't be writing them a check from your profits. This is based on my experience in almost all cases I've been involved in my 25 years in the industry.
November & December are the most active months of the year for investors to make investments in ongoing, and successful oil & gas drilling programs, particularly when an investor needs tax relief.)
Call or email me with questions, and to find-out more about oil & gas investing in the US today.
Dennis W. Stutes American Energy Developments Office: 408 975 0800 Cell: 805 701 7761 Email: americanenergy@gmail.com Email: dwstutes@sbcglobal.net
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Wed Nov 07, 2007
'Investing in Oil & Gas to Take Advantage of High Prices'
Investing in private oil & gas drilling & development programs is a better than ever idea now. All participants in oil & gas investing are now well motivated to take advantage of our very high prices, based on demand, and uncertainties in supply, and because of world events.
When oil & gas operators and small oil & gas company issuers finish their development or drilling projects the production buyers come out of the woodwork. This bodes well for investors who are willing to take the up-front risk associated with drilling for oil & gas, while they are taking the lucrative tax write-offs. Investing in projects that are majority controlled by operators, or company owners who can move quickly is also an excellent way to achieve liquidity in oil & gas investing as part of a pre-arranged 'exit strategy'.
You can make great profits while the stock market sorts itself out, and you can take tax write-offs while you reduce your gross income for tax purposes. This feature of oil & gas drilling programs is a prime reason to invest at this time of the year, especially for investors who want to significantly reduce their taxes by lowering their gross income for tax purposes, while being able to successfully hedge against rising oil & gas prices as a consumer.
Greed is a great motivator, and one of the chief hall-marks of capitalism, however, when you are excessively greedy when making oil & gas investments, you can make some avoidable mistakes. Diversification is the key way you spread-out your risk, and keep from losing your capital.
I'm hearing from more & more investors today who get so excited about a particular oil & gas investment, which seems to ring all the bells, they forget the prime directive when investing, which is to, diversify, diversify, diversify...sort of like location, location, location is to real estate. Don't make the key error of failing to diversify, or spread-out your capital in several oil & gas investment offers, even better make sure you do so in as many oil & gas wells as possible when you decide to invest in oil & gas. If the oil & gas wells you plan to invest are expensive, or drilling to hit an objective is very deep, cut the amount of money you plan to invest to lower amounts.
Also, as I've mentioned often, stay away from the promoters, and the heavily promoted oil & gas deals with high over-heads. They often take too long to fund, drill, and complete their oil & gas projects...the main reason is they don't own controlling interest, or have the majority interest in an oil & gas program, therefore, they are just along for the ride, no matter how long the ride might be. This is not a good situation for investors.
By investing in smaller companies who run lean staff, and field operations with low overhead, more of your money gets allocated into drilling, and building infra-structure, which eventually allows the company to sell to production buyers, and ultimately this will make greater profits for you.
If you would like more information, and some suggestions for where and what to look for while investing in oil & gas you can call or email me.
P.S. Since the stock market is down at the present it can be a good time to hedge your portfolio with oil & gas investments, while you take the great tax write-offs. You don't need to suffer while the market sorts itself out. There is some serious money being made in oil & gas right now. Why not take advantage of a profit center you might not have considered seriously enough yet?
Dennis W. Stutes, CEO American Energy Developments. americanenergy@gmail.com
dwstutes@sbcglobal.net Office: 408 975 0800 Cell: 805 701 7761
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