re: Need Horizontal Drilling Investment advice

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Westbank111

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The DJ and the Niobrera are definitely a little fraught these days given CO's stance on this stuff. I think just for that, I would put a discount on these wells. There might also be an actual wellhead discount to take into account.

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Mainly wanting to see what you guys think of future oil prices in next 1-2 years and beyond,

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IMO, you should completely abandon this line of thinking. At the very least DO NOT listen to the people selling you this and predicate your investment on such. Rather, you should be trying to ascertain the actual breakeven scenario to the downside. Nobody knows what the price is going to be. And if 25% is from gas, that's even HARDER to predict. I do like the fact that gas has been hammered, so at least in theory, you would be coming in with some decent upside optionality.

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49% annualized return
12-month 63% est. ROI
18-month 100% break-even,

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Even if they believe these numbers, I think it's suspect to actually show it to investors. They should be punishing it and hammering it down to a VERY conservative case, with all upside scenarios just lagniappe.

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100% tax write-off year 1 on investment via IRS Code “263C”
15% tax reduction on annual revenue

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Are you investing in an operated working interest or a non-operated working interest? Either way, yes, you should benefit from depletion, but you shouldn't rely on their guidance. You should get your own.

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“3 different benches in this play”
Pudwell = Proven & Undeveloped

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3 different depths/formations?

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Anything to ask this group on my end?

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Who is the operator?

Are they showing you actual type curves, or just giving you these numbers like you listed them below?

What kind of choke/flow are they planning on in the first 1-2 years? Some operators like to game the early flow so it looks mammoth and then they can raise big capital for future deals...at the expense of the one they are gaming, as this will very likely diminish the lifetime recoverables.

Can they share offset results with you? (I wouldn't consider it at all if they won't - you also could maybe spend your own money to hire a 3rd party geologist to create their own type curves and see how they compare)

What's the budget per well? How does that number compare to pre-inflation and where has it been trending? If they go over budget, do you just eat it straight up, or are they offering you some protections?

Who do they have lined up for completions and for sand supply? Piping?

How big is the royalty holder's piece?

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Well to his defense even a good prospect is only 40% chance of success. That is conventional well, not sure the % on shale.

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Shale is MUCH higher hit rate than that, although no guarantee of hitting grand slams like these guys are promising him.