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Title: Vagabond%20Ventures%20Oil%20Group


1
Vagabond Ventures Oil Group Searches For Fossil
Fuels Winter Session 2013
2
The Course Outline
The Basics
Week 1 Geology History of Hydrocarbons
Week 2 Oil Exploration Week 3 Petroleum
Engineering
black-gold millionaire or dry hole hobo?
The Adventure
Week 4 Vagabond Group proposes 2 prospects
your investment decision
Week 5 Vagabond Group plans production
Week 6 the Payout?!
3

TODAYS PLAN
Drilling Results
Return on Investments
4
DISCLAIMER The material you are about to see was
developed for the learning and enjoyment of the
class participants. The diagrams and numbers
have been gathered from various sources to
reflect the geologic and economic scenerios of
the two locations, but neither is a real
prospect and neither represents an actual
investment opportunity.
5
VAGABOND GROUP
2 OPPORTUNITIES On-shore Pennsylvania Off-shore
Gulf of Mexico
  • Drilling results
  • Return on investments

6
VAGABOND GROUP
On-shore Pennsylvania
2 OPPORTUNITIES On-shore Pennsylvania Off-shore
Gulf of Mexico
On-shore Pennsylvania
  • Drilling results
  • Return on investments

7
On-shore Pennsylvania
- reached Marcellus shale _at_ 4,935
- found 52 Marcellus shale
- TD _at_ 5,060 in salt
Is there gas?
Lets look at the seismic well logs . . . .
8

On-shore Pennsylvania
DISCOVERY
DRY HOLE
DRY HOLE!
52 shale no gas!
thickness ? gas ?
Why?
9

On-shore Pennsylvania
DISCOVERY
DRY HOLE
not organic rich
organic rich
1) no organic-rich deposits in our area of
Marcellus
2) gas leaked out of Marcellus shale along
fault
10

On-shore Pennsylvania
DISCOVERY
DRY HOLE
MARCELLUS
sorry, Sailor 2
DRY HOLE!
1) no organic-rich deposits in our area of
Marcellus
2) gas leaked out of Marcellus shale along
fault
One high investor lost a lot!
11
On-shore Pennsylvania
Its not too late!
N
S
our prospect
sorry, Sailor 2
DRY HOLE!
One high investor lost a lot!
12

On-shore Pennsylvania
DISCOVERY
DRY HOLE
sorry, Pete!
MARCELLUS
DRY HOLE!
1) no organic-rich deposits in our area of
Marcellus
2) gas leaked out of Marcellus shale along
fault
One investor lost EVERYTHING!
13
On-shore Pennsylvania
Its not too late!
N
S
our prospect
sorry, Pete!
DRY HOLE!
One investor lost EVERYTHING!
14
Upper Devonian Ohio Gas Shale
Its not too late!
15
Rocks of Northeastern USA
360M ybp
upper
DEVONIAN
middle
385M ybp
16
Upper Devonian Ohio Gas Shale
extent of Ohio and related gas shales
17
Upper Devonian Ohio Gas Shale
new study . . . oil and gas drilling
by Ohio Shale Commission
Ohio . . . your next investment?
18
Probable Extension of Ohio Gas Shale Play into
Illinois In Illinois the Ohio Shale is Called the
New Albany Shale
Ladoga
19
VAGABOND GROUP
Off-shore Gulf of Mexico
2 OPPORTUNITIES On-shore Pennsylvania Off-shore
Gulf of Mexico
Off-shore Gulf of Mexico
  • Drilling results
  • Return on investments

20
Off-shore Gulf of Mexico
- reached Wilcox sand _at_ 12,500
- found 2,166 sandstone
Let see!
- TD _at_ 16,624 in salt
- discovered 520 oil sands
Looking at the seismic data. . . .
21
Off-shore Gulf of Mexico
22
Off-shore Gulf of Mexico
23
Off-shore Gulf of Mexico
- fault
- sand
24
Off-shore Gulf of Mexico
- fault
- sand
25
Off-shore Gulf of Mexico
wheres the oil!
- fault
- sand
2,166
Lets look at the well log . . . .
26
Off-shore Gulf of Mexico
Reservoir Rocks (sandstones)
520 feet of pay near base of Wilcox!
Presence of oil/gas
27
Off-shore Gulf of Mexico
Lateral well
perhaps more pay!
?
DISCOVERY!
?
Great success for our investors!
28
VAGABOND GROUP
2 OPPORTUNITIES On-shore Pennsylvania Off-shore
Gulf of Mexico
  • Drilling results
  • Return on investments

29
Environmental Overview
Skip
30
Separating FACT from FICTION
UNIVERSITY OF TEXAS AUSTIN (January
2012) (http//energy.utexas.edu/images/stories/chi
p_groat_shale_gas120126.pdf)
  • General Observations
  • Many of the violations are procedural and
  • represent no environmental effects, or
  • are minor with no environmental effects
  • represent minor effects, such as small releases
  • Many of the effects noted occur in all types of
    oil and gas well development not unique to
    shale gas
  • Fractured wells may experience more incidents
    because of additional equipment on the site

PUT UTS RESULTS ON HOLD!
31
(No Transcript)
32
Separating FACT from FICTION
Environmental Protection Agency Study
Study started in 2010 Results due in 2012
NO RESULTS TILL 2014!
33
Remember the offshore border dispute?
34
Offshore development options
35
Remember fpsos?
36
Petroleum engineer
Primary Jobs
Covered in CLASS No. 6
Covered in CLASS No. 5
36
37
Economic Analysis
38
Oil gas economics
OG Tax Accounting
Oil Price
6 KEY FACTORS IN OG ECONOMIC ANALYSIS
Recoverable Reserves
Operating Investment Cost
Royalties Working Interest
Production Rate
39
Oil gas economics
Factors Affecting OIL PRICE
40
Oil gas economics
Factors Affecting RECOVERABLE RESERVES
41
Oil gas economics
Factors Affecting PRODUCTION RATES
42
Oil gas economics
Factors Affecting ROYALTIES WORKING INTEREST
43
Oil gas economics
Factors Affecting OPERATING INVESTMENT COSTS
44
Oil gas economics
Factors Affecting OG TAX ACCOUNTING
Tax code is written specifically for OG
investing, is complex and must be handled by
specialist
45
OIL GAS ECONOMICS
All of these factors result in an economic
calculation to determine the profitability of the
project
The economic calculation is a called a Net
Present Value (NPV) calculation
NPV ? (Income Expense)(1DR)t The following
examples will make this understandable
46
OFFSHORE GOM, BAHA 2
47
FUTURE PRODUCTION OFFSHORE
Economic Calculations are based on this type of
production curve
48
Simple net present value
OFFSHORE, GULF OF MEXICO, BAHA FIELD PRODUCING
100,000 BOPD INITIALLY DECLINING EXPONENTIALLY
OVER 10 YEARS
INFLATION DATA IS FROM APRIL 1989 TO APRIL 1999
427
49
ONSHORE PA, VAGABOND 1
50
FUTURE ONSHORE PRODUCTION
51
Simple net present value
ONSHORE PENNSYLVANNIA, VAGABOND FIELD PRODUCING
2.4 MILLION CU.FT PER DAY INITIALLY DECLINING
EXPONENTIALLY OVER 10 YEARS
52
Other investment returns
STOCK DATA IS FROM APRIL 1989 TO APRIL 1999
53
Other investment returns
MUTUAL FUND DATA IS FROM APRIL 1989 TO APRIL 1999
54
Other investment returns
INFLATION DATA IS FROM APRIL 1989 TO APRIL 1999
55
INVESTMENT SUMMARY
INVESTMENT OPTION RETURN
OFFSHORE GULF OF MEXICO, BAHA 2 427
ONSHORE PA, VAGABOND 1 -100
BIG OIL EXXON 121
MUTUAL FUND VEXRX 52
UNDER MATTRESS -34
(Results would vary for a different time period)
56
PARTICIPANT RESULTS - NOvA
of Class Range of Returns
6 greater than 5X the investment
67 between 2X to 5X the investment
27 between 1X to 2X the investment
-- Lost it ALL!.
1 person made more than
5,000,000! congratulations, WES!
57
PARTICIPANT RESULTS - SAGE
of Class Range of Returns
3 greater than 5X the investment
76 between 2X to 5X the investment
18 between 1X to 2X the investment
3 Lost it ALL!.
1 person made more than
5,000,000! congratulations . . . Four
Ss Drilling Co!
58
VAGABOND OIL GROUP
59
THE END
VAGABOND OIL GROUP
Thanks for the help . . . Kathy and Amy Marilyn
Nigel Charlie
60
THE END
VAGABOND OIL GROUP
Thanks for the help . . . Kathy and Amy Barb,
Ray Bert Charlie
61
PERSONAL CONTACTS
BOOKS/ARTICLES
  • Petroleum Geology, Exploration, Drilling, and
    Production by Norman J. Hyne PhD
  • Money in the Ground by John Orban, III
  • Lets Talk Oil Deal by John Orban, III
  • Economic Evaluation and Investment Decision
    Methods by Franklin J John M. Stermole
  • Financial Accounting for Upstream Oil Gas
    Activities, Professional Development Institute,
    University of North Texas
  • Choosing a Perforation Strategy, Schlumberger
  • Mike Beaumont, Petroleum Engineer Independent
    OG Consultant, Europe
  • David Karrs, Petroleum Engineer, Chevron, USA
  • Bob Gower, Finance Accounting, Chevron,
    Houston, Texas
  • Keith Seanard, PE Exploitation Mgr., Swift
    Energy, Houston, Texas
  • Frank Kelly, Petroleum Engineer, Schlumberger,
    Dubai
  • Tako Koning, Geologist Independent OG
    Consultant, West Africa
  • Robin Wrigley, Independent OG Consultant, UK

http//www.youtube.com/watch?vQ9gGqNUxQ5Q
62
Petroleum Engineer - REFERENCES
INTERNET
  • http//www.observationsandnotes.blogspot.com/2009/
    04/best-worst-10-years-in-stock-market.html
  • http//www.glossary.oilfield.slb.com/default.cfm
  • http//www.123rf.com/search.php?wordoil_wellstar
    t60searchoptsitemsperpage60
  • http//observationsandnotes.blogspot.com/2009/03/a
    verage-annual-stock-market-return.html
  • http//www.energyindustryphotos.com/oilfield_blowo
    ut_photos_and_rig.htm
  • http//www.rigzone.com/news/article.asp?a_id11561
    2

63
Oil gas economics
OPEC MEMBERSHIP
Saudi Arabia Iran
Algeria Angola
Ecuador Iraq
Kuwait Libya
Nigeria Qatar
UAE Venezuela
Gabon Indonesia are former members
64
Wind energy
65
Wind energy
1 natural gas well produces 2,400,000 cu ft per
day Or 100,000 cu ft/hour Natural gas has approx.
1,000 BTU per cu ft Therefore 1 well produces
100,000,000 BTU per hour 1 standard wind turbine
produces 6,824,284 BTU/hr (2.0 MW wind
turbine) Therefore, 1 well is equivalent to 14.7
wind turbines (in the amount of energy produced)
66
Wind Energy
  • 1 well takes 5 acres to drill 15 wind turbines
    need 1,220 acres (or 81.3 acres each)
  • Therefore, wind turbines need 244X as much space
    and 4X as many roads
  • 1 well cost 2.1 million 15 wind turbines
    52.5 million
  • Therefore, wind turbines are 25X more expensive
    for the same amount of energy

15 turbines need 1,220 acres
67
Select investment time period
68
How we selected the dji year
Found a website that did my work for me, or so I
thought
The Best and Worst 10-Year Returns in Dow Jones
History (since 1900) http//observationsandnotes.b
logspot.com/2009/04/best-worst-10-years-in-stock-m
arket.html
The best 10-year periods to own stocks were years
beginning in1918 the return approx. 19.5 per
year for next 10 years 1948 49 18.5 annual
return 1987 88 about 18.5 annual return
The worst years to buy were1922 the return
was 0.4 per year for the next 10 years 1928
-1.3 annual return (loss)-- because you would
have had the great misfortune of buying just
before the 1929-1932 stock market crash. 1964
annual return of 0.3
69
How we selected the dji year
Then used their chart to select years with
average returns
70
How we selected the dji year
But Exxons chart only goes back to 1970 Since
most of Best/Worst years were before 1970, I had
to start over
71
Dow jones industrial index (70-12)
So, used the DJI chart from 1970 to present and
selected 10 periods that gave a normal
distribution of possible returns
http//finance.yahoo.com/chartschart8symbol5Ed
jirange19700127,20120128indicatorvolumechartt
ypelinecrosshaironohlcvalues0logscaleoff
72
How we selected the dji year
gt 12.5
gt4.0lt 12.5
lt 4.0
73
How we selected the dji year
SORTED BY Order Picked out of Hat SORTED BY Order Picked out of Hat SORTED BY Order Picked out of Hat SORTED BY Order Picked out of Hat
Selection Start End Begin End 10 YR Compd
Order Date Date Years Dow Dow Diff Return Annually
1 Jan-94 Jan-04 10.0 3636 10357 6721 184.8 11.03
2 Jan-99 Jan-09 10.0 9786 8447 -1339 -13.7 -1.46
3 Jul-97 Jul-07 10.0 7945 13896 5951 74.9 5.75
4 Jan-85 Jan-95 10.0 1267 4158 2891 228.2 12.61
5 Jan-95 Jan-05 10.0 4157 10504 6347 152.7 9.71
6 Oct-89 Oct-99 10.0 2753 11497 8744 317.6 15.36
7 Apr-90 Apr-00 10.0 2881 10447 7566 262.6 13.74
8 Jan-02 Jan-12 10.0 10404 12980 2576 24.8 2.24
9 Jan-73 Jan-83 10.0 951 1130 179 18.8 1.74
10 Jan-87 Jan-97 10.0 2305 6583 4278 185.6 11.06
Don was asked to select a number from 1 to 10 he
chose 7
74
OG Economic Overview
75
Balancing Risks
  • 3000 Oil Gas Companies in the USA
  • 2 Key Attributes Finding OG Managing Risk
  • What risk you say??....

Company A Strength Weakness
Company B Weakness Strength
Company C Strength Strength
76
Risk Mitigation
  • If you do
  • DUE DILIGENCE
  • PLANNING
  • THOUGHTFUL PREPARATION

Include table from Money in the Ground, page 212,
figure To what extent can OG Investments risks
be avoided, controlled or minimized?
  • You can avoid
  • 100 stupid mistakes
  • 80 of excessive drlg costs
  • 70 of excessive prod costs
  • Etc.

From Money in the Ground by Orban
77
Six Principle Economic Factors
(and attributes that cause risk of that factor)
  • Price of oil (POO) (OPECs mood, worldwide
    supply/demand, weather, market speculation,
    standby production capacity, political
    instabilities, refining capacity, etc.)
  • Recoverable Reserves (RR) (reservoir aerial
    extent, thickness, porosity, permeability,
    reservoir drive mechanism, etc.)
  • Production Rate (PR) (State mandated Allowables,
    depletion curve, byproducts produced, etc.)
  • Operating Investment Cost (OIC) (depth of well,
    byproducts produced, proximity to market, steel
    supply/demand, type drilling contract, amount of
    logging done, volume capacity of producing
    facilities, disposal issues, water and fuel
    source, insurance cost, etc.)

78
Six Principle Economic Factors
(and attributes that cause risk to that factor)
  • Ownership Working Interest, Royalties
    Overrides (WI, ROY, OR) (ownership subject to
    priority overrides, calculating working interest
    in OG properties is not straightforward as you
    might think)
  • Oil Gas Accounting (TAX) (tax code is written
    specifically for OG investing, is complex and
    must be handled by specialist accounting methods
    of successful efforts or full cost handling of
    depletion allowance, etc.)

79
Distribution of USA Wells by Production
80
Distribution of Texas Wells by Production
81
Operating Costs Onshore, Oil Well
82
Operating Costs Onshore, Gas Well
83
Economic Analysis
  • The bottomline in any financial investment
    decision is what is the NPV (net present value of
    the cash flow stream) generated by this
    investment
  • NPV is therefore a combination of the six
    principle factors in these generalized equations
  • Revenue PR x POO x (WIROY-OR)
  • Costs OIC x TAX adjusts
  • NPV (Revenue Costs) per period
    discounted at some discount rate

84
Economic analysis
  • In conjunction with NPV, modern risk analysis
    uses Expected Value Theory for investing in a
    pool of properties
  • Example
  • (all costs in
  • 1000s)
  • The cost of the deal should be no more than 150

Possible Outcomes NPV Value Probability of Outcome Probability Weighted Value
Successful Well 1,000 10 100
Successful Well 250 20 50
Dry Hole 0 70 0
Expected Value 150
85
OG Business Cycle
  • There seems to be a business cycle like this
  • Demand for crude increases
  • Since it takes time to find develop new
    reserves, there is a near term shortage
  • Prices rise people turn to Conservation
    Alternate Energy
  • Oil companies investors rush to invest in
    Exploration Production (EP)
  • EP investments start to grow 18 mo or so later
  • Supply floods the market, prices recede people
    forget about conservation
  • Eventually, demand starts rising again

From Money in the Ground by Orban
86
Economic Analysis
  • In summary
  • Oil Gas investing is a risky business
  • Understand the components of risk
  • Invest with experienced, reputable companies with
    a very good track record of both finding
    hydrocarbons and minimizing risks
  • Use investment specialists as required
  • Catch the OG business cycle at the right time

87
36 hole 30 csg
24 hole 20 csg
17 ½ hole 20 csg
12 ¼ hole 8 7/8 csg
ACTUAL
8 ½ hole 6 5/8 csg
PLANNED
88
Where did weird idea come from?
Spotted the concept of an oil platform attacked
on the web, of course. Built the idea from there.
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