1 Evaluate the prospectus for reasonableness and completeness.
2. Evaluation of the proposed project costs to include:
a. Drilling expenditure
b. Testing expenditure
c. Completion expenses
d. Equipment expenditure
e. Production expenditure
f. Management fees
Examples: Drilling costs vary by footage, day rate, and geographical
location. Lifting devices, such as pump jacks, range in cost from $2500
to over $100,000 depending on the well type.
3. Evaluate the prospectus for reasonableness of the distribution of
royalty and working interest in the well.
Example: It is, unfortunately, not uncommon for deals to be so divided
that a fair return is virtually precluded.
4. Review the base lease for term, delayed royalty and rental payments,
access, land restoration, and other provisions of vital interest to the
investor.
5. Examine the Operating Agreement for reasonableness.
