Newsletter, Links, & Opinion

About a year ago, we were approached by an operating company out of the Illinois Basin for promoting working interest. As a group that had topical knowledge of IL Basin geology, the infrastructure, and have been burned in KY about 10 years ago, we were very hesitant about anything out of the TX-LA-OK area. 

After some due diligence we decided to promote their deal based on the following:

· NRI of 85% (TX is around 75-80%NRI)

· Shale payzone only needed 3-4 frack stages (other shales in US require at least double digit)

· $20 BO breakeven once in production

· Promised weekly updates

· And the big one...they have drilled 9 successful wells in the Basin in the target payzones

Well, it took a while (due to vendor and supply delays) but here’s the great news:

· The first well completed is on choke doing 180 BOPD (open is estimated at 300 BOPD) (not in shale)

· Second and third well already drilled and awaiting frack (out of 10)

· They’ve ACTUALLY delivered on weekly updates

· With oil at $70, this first well should pay off in 3 months

Based on the success of this lease so far (and another one we privately promoted in-house), we are encouraging you to check out these 2 new offers from the Operator:

· Working interest in a 2 well drilling program on a different lease in IL. Great entry price and potential ROI, much like the above. ID 1211

· WI the lease above in wells 4-10 .  ID 1202

As much as I like TX, I’m starting to fall in love with the IL Basin!

At the beginning of the year I write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint.  I like to revisit this around July to see how things stand.

I’m not going to pat ourselves on the back on what we got right...you can read our opinion in January for that. Let’s review where we “missed”.

• Rig count and stockpiles should be fairly stable throughout the year as world and domestic demand is only seen to rise no more than 5%. Rig count may have a higher percentage of re-entry vs exploration.

Rig count in TX alone went from 161 in January to 221 today.

• Some oil economists are predicting market price increases with volatility especially in Q1. It may create an artificial price spike with WTI and natural gas pricing in Q2.

Price increases are not artificial. It’s here to stay through the year.

• Lack of exploration makes for a scenario for increased demand and prices in 2022 with supply “chokes”. 

We’re seeing these “chokes” now!

• We’re predicting no lower than $45 WTI/ $2.70 natural gas and no higher than $73 WTI/$3.30 natural gas for 2021 for extended periods. WTI is $52 today and gas is $2.70...

WTI @ $73 and natural gas @ 3.60 today.

So, What Happened?

Current Administration: As predicted, we knew that administrative actions would elevate prices (closing Keystone and gov’t lease development were easy calls). However, we were thinking more “Obama”.  What we didn’t account for was federal unemployment extensions beyond Q1, causing massive labor shortages along all lines of manufacturing, distribution, and services. This has pushed all supply chains as demand is not being met because of...

Unprecedented consumer demand: We predicted that consumption would be coming up from demand, especially on transportation side (goods transport, office travel, tourism rebound, etc.) as the economy start to open up from our artificial shut-down. What we didn’t expect was the amount of cash being thrown around by consumers and extremely low bank financing rates...causing unprecedented inflation on all goods and real property, affecting directly and indirectly pricing.

Scorching Hot Weather: Early summer high heat has produced significant strain on the electrical grid. Records were broken this week all over the West. Renewables cannot keep up and hydro is falling rapidly as a reliable source. This mean all fossil fuel electrical producers are producing at full capacity.

The good news is that the oil and gas industry will have steady domestic demand for the entire year. The trick will be how E&P companies can streamline their labor to be more efficient and how savvy they can be to find equipment.

We estimate now WTI @ $85 by September and Natural Gas @$4.20 by November.

Best bet? Look for shallow exploration and re-entry programs, where equipment is already on the lease or is in greater supply for purchase. 

And yes, we have those!

When considering investing in E&P oil ventures, it is understood that it has global demand. The typical evaluation process goes from geology; reserve and production estimates; and cost to drill, test, complete (DTC); taxes and royalties; then lifting costs.  Who picks up the oil is on the list, but not critical as prices are relatively consistent between vendors.

However, natural gas prices are much more subject to regional demand and infrastructure.

For Natural Gas prospects, we start the evaluation at the "end" of the list by asking these 3 questions:

                         Who is the buyer and what is the contract price and terms?

This is the first question we ask, therefore most important. It is extremely helpful if local industry is a major player for the demand. We have seen leases that could net significant dollars from large production...if only there was a local market for it with a decent price in the area. We’ve also seen leases where natural gas is at premium demand in which even a nominal producer can be very viable (as low as 10 MCF). Having a contract price and terms in place assures your product has a place to go. If not in place on larger plays, it’s a “stop” for us.

                                              How far is the closest pipe to the buyer?

Natural gas is transported off a lease via pipeline while most oil is picked up in trucks. In many cases, distance between lease and buyer pipeline can be THE determining consideration. In Texas, it is rich in pipeline infrastructure. However, there may be only 1 gas purchaser in the area. This could drastically affect the price per MCF you can negotiate. Also, you have to build the pipeline and appliances to hook up into their pipeline. There may be right of way issues that must be addressed as well.

                                                      What’s the quality of the gas?

Natural gas can be quite different in BTU and condensate percentage. Higher values of both usually make your product more valuable. Another factor that can affect net revenue is whether it needs to be “scrubbed” to remove unwanted gases (hydrogen sulfide). This requires additional equipment on site. 

After we have these questions answered, do now we go through a typical evaluation.

I prefer gas leases with a mix of shut-in wells and production and most infrastructure in place.  Gas re-works and re-entries are typically less risky than its equivalent in oil.   We have a few mid-majors who are looking to unload such leases and operators ready to bring them up to speed.  Simply put, we can create custom packages to meet most investment criteria.

 Most fossil fuel investors are strictly oil. Those that invested in lease production programs early in the year are seeing big gains from buying in on cheap costs. West Texas Intermediate as gone from $48 to $70...a 45% jump in price. 

But finding undervalued deals on oil development is getting tougher.  Simply put...supply is shrinking and break-even is pushing out.

You know what else has gone up in price this year? Natural Gas! It’s up 33% this year.

I’m keen on natural gas right now for many reasons:

· Natural gas is used for both electrical generation – year-round demand

· Very reliable heating fuel source in cold months (unlike renewables) demanding higher prices 

· A great deal of workover and lease improvement inventory compared to oil leases

· Infrastructure in many areas is very solid for quick delivery

· Condensate can add a little extra $$ without additional costs

I’m predicting a higher ceiling percentage on natural gas in the upcoming year. Lights are already flickering throughout Texas due to burdens on the grid.  Renewables cannot simply keep up.

Now I get it...calling yourself a “Gas Man” is a lot less boastful than “Oil Man”...but your significant other won’t mind too much if your monthly revenue checks are bigger!

So, if you don’t have natural gas in your working interest portfolio, now’s the time to seriously consider investing. 

Check out our opportunities at KnikEnergy.com. We have flexibility on production and upside combination programs for all budget considerations.

             At the  beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint. We've been MOSTLY accurate (taking out 2014) in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2020, our prediction was fairly close...if you don’t count the pandemic!

                            So let’s talk about what we saw in 2020 on the world  market

• Rig  count was down by at least 40% throughout the world. Lots of layoffs from top producers up and down the chain.

• The United States was STILL the strongest player on the world oil and gas market. The US controls both imports and exports in their hemisphere and  what they will and can take from the Middle East.

• Large US producers evened out supply and demand for the most part by end of Q3

• Continuing sanctions on Iranian oil and pressure on their typical buyers to refuse delivery has certainly helped. It has helped stabilize the entire oil economy in the Middle East.

•       Anyone who shorted oil in Q1 got killed in early Q2 (but a good time to pick up some commodities).

• A “little” blip where you had to pay someone to pick up oil from West TX in April!

               What do we see on the domestic and international realm on a whole today?

• Rig count and stockpiles should be fairly stable throughout the year as world  and domestic demand is only seen to rise no more than 5%. Rig count should have a higher percentage of re-entry vs exploration.

• OPEC+ members will be coming back to play “ball” with the US markets...keeping all commodities stable...for about 6 months. (Russia went after Trump and US...didn’t really pan out for them)

•  Although their demand will grow, neither China nor India should develop enough new demand to outpace supply based on their current overall economic conditions.

• LNG and crude/refined product export market will slightly increase with a new China trade deal.

                                             What role does politics plays into this year?

This year, we anticipate that we will see similar policies implemented by the Federal Government side as we did in the Obama Years. This will create the following:

      • Little to no support for new domestic infrastructure (think Keystone       Pipeline)
     • Little to no new development support on any Federal lands or existing       leases
     • Open LNG business to China
     • Iran may come back into play as supplier
     • Federal Tax incentives being left alone

Leading to: Federal lease interest with ANY type of polarity (environmental action groups) will NOT be pursued by major oil companies (ex: ANWR bids were abysmal) AND mineral rights on private land may be valued higher.

                                  What can be expect for the domestic prices as a whole?

We’re predicting no lower than $45 WTI/ $2.70 natural gas and no higher than $73 WTI/$3.30 natural gas for 2021 for extended periods. WTI is $52 today and gas is $2.70.

Of course, there are possible factors that could fluctuate prices rapidly.   Some oil economists are predicting market price increases with volatility especially in Q1. It may create an artificial price spike with WTI and natural gas pricing in Q2. There is also the possibility that OPEC+ countries may go rogue and dump product on the market.

                  What does this mean for the direct domestic oil and gas investor today?

We are anticipating no fire sales of leases, production, equipment, nor any soaring prices of operating expenses. With little demand for exploration, it will keep lease and oilfield services and availability in check.

Lack of large exploration today makes for a scenario for increased demand and relatively diminishing storage in late Q4.

We are predicting a statistically significant price jump in both Brent and WTI by Q3.

We see some significant short and medium gains to be made for those who get in early into programs that have good potential for production and solid site management practices. especially in Q1.

Don't be in "I should have invested" boat...check out the programs we have today or call us to customize your investment criteria in this  space, including leases for sale.
____________________________________________________________

This  is not an offer to buy or sell securities. We are not a United States Securities Dealer or Broker or United States Investment Adviser. This is an opinion article and should be treated as such. Do your own due diligence and consult with a licensed professional before making any investment decisions.

©2021       Knik Energy | Ft. Worth, TX 

Knik Energy Inc. is officially announcing the halt of promotion of investment programs for well development or improvement offered by  Kelly Buster and/or assigns (Union Asset Management, LLC.  Strawn Partners Operating, LLC Holland Asset Partners, LLC, etc) .

So...we observed the price of oil for the past 2 weeks get hit by hyperbolic news and natural market flows. Then yesterday happened...

Saudi Arabia, in a bid to squeeze Russia and its oil partners, has decided to open the spigots and flood the world market with cheap oil.  Although it appears the US is not the specific target, we are taking shrapnel. I saw WTI go down to $27 yesterday...was getting flashbacks from a few years ago. 

Let’s get to the facts:

• This may be the strongest US economy in history both on market and in the streets (industry, technology, employment, etc.). 
• Covn-19 is somewhat predictive on who is most susceptible and individuals and governments are taking some counter-measures 
• China is going back to work
• US is ENERGY INDEPENDENT and diverse...we don’t need foreign crude nor refined product.

I predict short term that oil purchasers and downline entities will feel the pinch as large oil producing leases with slim profit margins will be at the least holding onto product.  Some ops may shut down temporarily by end of the week (shale). Good time to get equipment and shop maintenance done.

Medium term is a little harder to predict, but I suspect that since SA and Russia are so dependent on crude for their livelihood (as China ramps up again), this will be resolved in weeks and markets should bounce back at least to $48 WTI.

I do not see at this point where investors can take advantage of lower development costs unless we see oil in the $30’s for a month. If it comes, we will take advantage just like we did a few years ago.

As long as people love shopping online worldwide and no one's talking about putting sails on cargo ships, I think we're good!

Happy Monday

At the beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint. We've been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2019, our prediction was very close to actual. In a simple phrase...a pretty boring year...Which I LOVE!

So let’s talk about what we saw in 2019 on the world market:

• The United States IS the strongest player on the world oil and gas market.  The US controls both imports and exports in their hemisphere and what they will and can take from the Middle East. 
• Large US producers evened out supply and demand for the most part
• Sanctions on Iranian oil and pressure on their typical buyers to refuse delivery has certainly helped. It has helped stabilize the entire oil economy in the Middle East.
• China's economy did not make any significant gains due to internal and US pressure to “play fair”, therefore not attributing to any significant demand for hydrocarbons on the world market. 

This year, we anticipate the following:

• Rig count should be fairly stable throughout the year
• More small oil producing companies will be merging or being purchased. It’s “big fish eats little fish” season.
• OPEC+ members will keep playing “ball” with the US...keeping all commodities stable.
• Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions. 
• LNG and crude/refined product export market will slightly increase with new China trade deal, but not at a pace to significantly affect price.  

Of course, there are possible factors that could fluctuate prices rapidly:

• Some oil economists are predicting market price increases with volatility especially in Q1. It may create a little chaos with WTI and natural gas pricing. We disagree as we know reserves with small and large producers are ready to pounce on any increase. Hedge funders may get killed trading (we don’t play that game here).
• Possible Middle East tensions disrupting oil flow (like almost any year)
• Trump Factor. If he’s not re-elected (seems highly unlikely), you can expect market and commodity chaos at the end of the year.

So, what does this mean for the direct oil and gas investor today? We are anticipating no fire sales of leases, production, or equipment nor any soaring prices of operating expenses or leases either. In reality, a fluid and fair-trading market. 

It's the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years.  Fossil fuels are NOT going away as no technology can ramp up in any near time frame to replace the FF’s output and distribution.

We’re predicting no lower than $45 WTI/ $2.00 natural gas and no higher than $60 WTI/$3.10 natural gas for 2020 for extended periods.

Happy New Year!  

At the beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint. We've been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2018, our prediction in the beginning of the year was very close to actual. What we didn’t expect was the significant downturn in Q4 in the markets, which in turn with a bit of oversupply, to drive the markets down everywhere. We did, however, predict the low on West Texas Intermediate (WTI) correctly. Also, we didn’t expect natural gas go to $4.50...even though it was very short lived and completely predictable it would come back down to earth.

So let’s talk about what we saw in 2018 on the world market:

• The US has become the strongest player on the world oil market.  The US controls both imports and exports in their hemisphere and what they will and can take from the Middle East.
• Large US producers created several periods of oversupply due to technology enhancement on new and re-entered wells...the same technology that helped the US become #1.
• China's economy did not make any significant gains due to internal and external factors, therefore not attributing to any significant demand for hydrocarbons on the world market. 
• The spot price of Midland WTI dropped significantly compared to WTI from other areas, some differences I heard as much as $17 less! 

This year, we anticipate the following:

•  Although optimistic budgets were set by most large exploration companies in Q3 2018, we expect rig count to be declining throughout Q1 2019 and pick up in late Q2. 
• OPEC+ members will keep playing “ball”. They really have no choice.
• Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions. This was the case last year and we even expect some contraction.
• Midland WTI pricing will stay suppressed until Q3 when pipelines are in place to move product.
• LNG export market will increase, but not at a pace to significantly affect price.
   

Of course, there are possible factors that could fluctuate prices rapidly:

•  Wall St. types are predicting growth but with volatility especially Q1. This will create a little chaos with WTI and natural gas pricing. Hedge funders may get killed trading (we don’t play that game here).
•  Possible Middle East tensions disrupting oil flow (like almost any year)
• Iran Sanctions (and how they are applied)
• Trump Factor (again, the wild card)

So, what does this mean for the direct oil and gas investor today? It's a year of volatility up close but with slight uphill trend, which means that both buy and sell side will stay in balance as it did much in 2018.  We are anticipating no fire sales of leases, production, or equipment nor any soaring prices of operating expenses or leases either. 

It's the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years. 

We’re predicting no lower than $42 WTI/ $2.10 natural gas and no higher than $65 WTI/$3.10 natural gas for 2019 (for extended periods).

Happy New Year!

John Mink, CEO

And the Winner is: USA! 

The US has become the strongest player on the world oil market. 

The biggest reasons for this declaration are due to improvements in completion technology (fracking shale) helping to release more reserves, lifting of the crude oil export ban in 2015, the SURPRISING fiscal responsibility of large producers after the 2014 crash, and the fall or distaste of oil-producing countries’ product due to their corruption. 

The US has been the largest producer of oil for the past 2 months and its companies deliver on product promised. This has helped maintain a stable hydrocarbon global economic environment for those who “play nice”.

So, what’s does this mean to upstream investors like yourself?

It means that we can anticipate oil prices to stay relatively stable as well as expenses for drilling, testing, and completion for the foreseeable future. In this market, you will see very few “fire sales” and price gouging will be kept at minimum unless you’re selling over 1000 bopd leases. Some predictable circumstances for seasonal oil price fluctuation or increased field costs are delayed pipeline development in West Texas, weather (Texas had it’s rainiest October ever, halting almost all field activities in areas), and labor shortages. 

Being stable is being happy...and allows everyone to sleep peacefully. If you want this feeling from your investments, check out our opportunities page.

John Mink

Prediction Time for 2018

At the beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint.We've been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2017, there were some significant moves and non-moves made in the oil and gas market. It mostly has to do with the realization on a world-wide basis that oil is not scarce and exploration and production costs do matter to the bottom line.

   · OPEC and non-OPEC allies played very well with each other this year.  We thought, based on history, one of the allies would go over-quota and start a price war again.  Really didn't happen.

   · Large US producers did not get overzealous and over-produce with small spikes in market price.

   · US is now exporting more product than ever, due to the US's ability to deliver product on an honest basis and build-up of infrastructure (even though it may be more $ per barrel than dealing with other factions)

   · China's economy did not make any significant gains, therefore not attributing to any significant demand for hydrocarbons on the world market.

This year, we anticipate the following:

   · OPEC and non-OPEC members have agreed to continue production cuts through 2018.  Since they kept to the game plan in 2017, we give them the benefit of the doubt for 2018

   · Although US corporate tax cuts are significant, industrial growth will follow a little slower than most expect due to the strength of the dollar.

   · Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions.

   · Large US producers will stay the course and mostly develop what's in reserves (PDP) and stay onshore.  ANWR will not affect price for years to come (as an Alaskan I'm thrilled it's now open to possible exploration and production).

   · "Cheaper" oil on the market from questionable sources will keep US oil export demand steady

Of course, there are possible factors that could increase prices rapidly:

   · How many US dollars will be "re-patriated" back into the economy from overseas accounts and IF it correlates to rapid industrial growth.

   · Foreign investments have dramatically increased in 2017 into US oil and gas assets (and other industries) and may increase in 2018. Knik Energy has seen an increase of 55% more in funding from 2016 from clients living abroad with accounts in the US. This may start bringing up domestic prices on programs, including the ones we offer.

   · Possible Middle East tensions disrupting oil flow (like almost any year)

So, what does this mean for the direct oil and gas investor today? It's a year of stability with slight uphill trend, which means that both buy and sell side will stay in balance as it did much in 2017. 

It's the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years.

I'm predicting no lower than $50 WTI/ $2.80 natural gas and no higher than $70 WTI/$3.30 natural gas for 2018.

Happy New Year!

John Mink, CEO

EDITORIAL: "Q and A" TIME  I've had a lot of questions come in (and had some from myself) I wanted to address for the past 10 days. I was trying to figure out a format to best communicate where the industry as a whole has been, where it is, and where they may be going in regards to direct oil and gas investments. So I've decided to do a lot of research and have a one-on-one Q&A with myself (sort of) on a very topical basis.  
(Keep in mind that this my conceived opinion based on numerous sources of information; including, but not limited to: articles, expert opinion, interviews, and personal experience.)  


Q: Why are we at where we are today globally?

Thanks to enhanced exploration and production technology and a weakened global economy, worldwide oil and gas markets, which had been mostly demand-side heavy with heavy speculation activity, became more in line with traditional supply-demand curve economics in early 2015.  
U.S. reaches a point in where they are essentially oil independent thanks to oil shale production.  There is less demand for oil from OPEC. Worldwide, storage is at relative over-capacity.  
Saudis declare pricing war on US oil companies by pushing as much oil on the market in hopes of choking out shale-based oil companies (operating costs much cheaper in SA than U.S.) at  their own perceived short-term detriment in order to drown U.S. oil companies, gain future market share, and keep their country solvent. It hasn't worked. Smart oil companies have learned how to produce more efficiently and reduce operating costs on shale wells in 2015, cut E&P budgets, shedding payroll, and have saved their  dollars for lean times like this. China's economic growth have been exposed as weak, driving down their currency and demand for product.  
Oil is now at $30 a barrel for WTI and Brent.  

Q: Where do you see the industry going as a whole in the short term?

$20 oil is not unrealistic for a short-time period in the first quarter as the dollar remains strong and will get stronger thanks to China. Also, Iran will put another 500MBOPD on the market soon.  
Saudis will continue being stubborn starting in 2016.  They are now indicating an IPO to keep their current strategy on pace.  They've already lost billions (if not a trillion).  OPEC's next meeting is in June.  I don't think their strategy is going to change between now and then.  
Non- disciplined shale producers whose economic model is to turn and burn Bakken and Eagleford shale wells will go bankrupt in first half of year.  Most other companies will be able to ride   the storm out for another 6 months, but will be cutting back E&P budgets and personnel even more. Since we're at max storage and speculators are on the sidelines, expect the prices not to jump significantly even if there's substantial Middle East conflict (we've seen plenty between Syria, Libya, Iran, and SA with no lasting effect in 2015)

Q: Are we looking at the 80s all over again

Yes and no. Yes, we are seeing some of the same circumstances (high supply, limited demand) but now we see U.S. oil companies have the ability to ride it out better due to their long-term funding reserves.

Q: When will prices go up?

Who really knows? All I know is that I'm not declaring the bottom today and I don't expect to see $100 oil anytime soon. I'm starting to go grey and lose hair trying to predict something that is  out of my control.

Q: So, where do things stand today for direct investors?

If you like to purchase producing assets, the supply is tight especially with the smaller producers (Under $20MM). There are no fire sales out there but you can make purchases between $25K-$30K per BOPD pretty quickly at 100%WI. If you want to pay less, you'll have to hold out and take your chances. I don't recommend doing so.  It's pretty much the same scenario it's been since 2010, just point of entry is lower.  
If you like to invest in new drills and reworks, it's a good time.  The service costs (drilling, completion, re-entries) are effectively bottomed out (most drillers will work at cost just to keep their employees on payroll) and really cannot go any further down.  The service companies still in business will have the best experience, personnel, and are available. In turn, economic break-even will be longer than what they were for the past 4 years. I'm setting pro-forma oil pricing at $25 oil until I see circumstances change and urge patience!  

Q: What can you conclude at this time overall?

I can tell you that I've had a huge upswing of inquiries in opportunities in the past 2 weeks. Since most investors who contact me are seasoned direct oil investors, I'll conclude that they see this (as I do) as an opportunity to take advantage of under-balanced oil price and development costs. This looks very similar to the last residential real estate cycle.  
All I know is that I'll have no sympathy for those who complain they missed the boat who are sitting on cash and waiting for the bottom.
John Mink, CEO

Many have asked us what we prefer concerning conventional vs. non-conventional oil and gas plays.
 

The best place to start is defining the 2 terms. Doing some research, there is no standard definition that either oil companies or even governmental entities can wholly accept.  From a technology standpoint, it'ss even more ambiguous as methodologies for exploration, drilling, and completion of wells are interchangeable based on geographical and geological factors.
 

I like to think of the difference between conventional vs non-conventional as where known oil or gas sources could not be accessed in the past economically without technology advances introduced in the early 90s.  Shales and heavy oil sands are the best examples of source material for non-conventional plays.  For instance, people have been drilling vertical wells just above the Eagleford Shale into the Austin Chalk for decades.  The Eagleford was the known source rock for the Austin for decades but no one could take advantage of going directly to the source without advances in hydraulic fracturing and horizontal drilling techniques.
 

Since we deal with mostly US plays, we will base our definition of non-conventional starting with onshore shale and conventional as just about everything else onshore.
 

To get to the point, I recommend to almost all of my clients to avoid non-conventional plays as long-term investments for the following reasons:
 

Cost of Entry:  Non-conventional plays require much larger acreage purchases of leases (typical spacing of shale wells is 80 acres) and even larger budgets for exploration, reporting, development, and operating expenses.  For example, a single well into shale (Eagleford or Bakken) will cost millions of dollars due to the depths, the horizontal aspect, and the multi-stage fraccing.  Typical wells can run from $8-$12 million USD.  A conventional vertical well drilled to the same depths into conventional sands will cost 1/10 that cost at most.

Operator Availability: All of the Big Boys have booked services for drilling, completion, and multi-stage fracking months in advance.  In most cases, you can find an operator to drill vertical wells no more than a month out at most as there's more of them available.

Drilling through Production Timeline– Non-conventional wells can take upwards to a year to drill, complete, and perform multi-stage fraccing (up to 20 stages in some cases).  Typical conventional wells can be up within a month.  Both are assuming no unforeseen delays due to weather, operator availability, tangibles availability, loss due to theft or breakdown, etc.  I've seen shale wells take up to 2 years before coming online.

Decline Rates: Typical decline rates of non-conventional plays are dramatic.  You could IP at 400 BOPD and be at 20 BOPD in 2 years.  Your investment must be made back within the first 6 months or you're underwater.  Conventional plays have much less dramatic decline rates where payout can be made out in a year and keep producing monthly checks for significantly longer.

Ongoing Development: With most non-conventional programs, I’ve seen the need for the continuous cash calls to keep drilling to stay on top of profits.  Clients who have invested in shale though other sources have told me stories about the endless cycle of checks coming in and going out.  To them, it has become a headache to manage.  These individuals were looking for investments and keeping their day jobs, not to create another job for themselves.  Typically, most conventional plays allow for greater time spacing for lease development to keep production numbers the same.

Market Price Differential : Some conventional oil and gas is lower in gravity, therefore receiving less than market value. Bakken oil typically sells for less than $20 below WTI due to transportation, lower gravity, storage, and refining capacity.   
 

In short, non-conventional plays are for the more aggressive investors with deep pockets and patience.  If this is your game, I can find deals for you. Don't get me wrong...you can make a great deal in returns but the margins are typically lower, thus making it more risky if the price of crude dips below today's prices even 30%.  Conventional plays offer an opportunity to enter deals at a lower price level and see checks come back to you quicker without the constant need for cash calls.
 

I recommend, sponsor, and put my money in the conventional plays.
 

John Mink, CEO Knik Energy