CRITERIA FOR DEAL EVALUATION

The number one economic consideration is risk to return, especially as it relates to the odds of success. After that comes projected payout calculations. How long before each well pays out? How long before the entire project pays out? Other details, such as additional costs for leases or development drilling are important as well.  In the end, all of the economic considerations need to be scrutinized very carefully. 

The deal will be set out in the economics, so it will either fly or not based upon the economics. Always be aware of the potential for negotiation, and if we elect to participate, we should always attempt to negotiate a better deal.

 The company is comprised of people. We need to evaluate the competency and the integrity of the management and the key personnel. What is their reputation?  What is their track record? What is their experience level? What is their education? 

Same as above. Also, does the operator have experience operating this type of well? Be aware there is a huge learning curve involved for horizontal drilling and for certain other types of wells. It takes a while to develop the contacts and personal relationships necessary to drill and operate in a new area.  Is this a company we feel good about working with? Do we trust them with our money? 

Track record is the most important criteria here. Then comes education,  training, and experience. Has the person responsible for generating the prospect worked this particular trend for very long? Has he or she done a lot of regional work in the area?  How good is his or her bullshit? Are we sold or are we still dubious? How closely do we need to double-check his or her work? 

Is this a type of play that has been made successfully by others? Is it in a proven trend? If so, then we need to take a close look at the successes and the failures of comparable plays in the trend and see if  we can learn from them. If this play will open up additional areas for development, are we set up to capitalize on our potential success? 

Are there title risks? Will title examination be expensive or time consuming? 

Other risk factors can include impending lease expirations, ability to market gas, potential for lawsuits, and the potential for drilling or completion problems and the resulting cost overruns. What are the chances that you will be faced with a “teaser” completion decision?   Will a successful well mean acquiring additional leases? Will we have to compete for those leases with other companies?