How can I understand the partnership Documents?

Most private investors compare reading oil & gas partnership documents to drinking from a fire hose: the volume of information and terminology are overwhelming.  There might be a “Project Overview” as well as the “Private Placement Memorandum” or “Confidential Offering Memorandum”.  How do you figure it all out?

The purpose of this checklist is to help you organize the information so you better understand it.  When you are done, you will be ready to discuss the details further with the company offering the project.

Project Type and Size

1. Type (Infill Offset Workover)
Depth_______
Drill Costs/Foot______
Drilling Cost______

2. Total Number Units____________    Unit Cost_____________    Unit % Ownership_______
Number offered to Private Investors_______
Number purchased by Company or Other Parties_____
Number and Type of Payments__________

3. Timing Estimates
Start Date_________
End Date__________
Start Date for Monthly Revenue________

4. Approximate Financial Projections (for Low/ Medium/High Oil Price Scenarios)
Average R.O.I. and how calculated________
Payback Period________
Monthly Revenue (Gross and Net after taxes and operating expenses)__________
Total Revenue ____________ Duration (Years) _______

Petroleum Geology Considerations

Petroleum geologists estimate the recoverable reserves by “reading the well logs” that indicate porosity (more is better), permeability (more is better), water content (less is better) and resistivity (more is better).  You should find information pertaining to this.  Read through it so you can discuss why the geologists think they will get a producing well.

5. Geology Discussion Notes

Memorandum Details

The actual Memorandum is an official legal/business document whose structure should adhere to regulatory legal/accounting guidelines.  It is designed to provide transparency (Blue Sky Law) and protect the investor from fraud and deception.  If you have a Lawyer or Accountant, you could have them review it for compliance with generally accepted legal/financial practices.  Here are the key points to understand:

6. Percent Markup (Profit margin for compensation to company for their work)

7. Liability (Who is liable and how is it shared among all parties)

8. Tax Issues (Write-off and deduction status)

9. Contingency Costs (Subsequent charges partners might encounter: Workover,  Plugging and Abandoning , etc)