04 May What Are The Risks, And How Do You Mitigate Them?
We get this question from new and even seasoned investors. And it’s a good question. Every deal can have a unique set of risks, but the 2 of the big ones are:
1 . A drilled or re-entered well is simply not economical to produce in any formation after testing.
2. A drilled or re-entered well fails during completion efforts.
Let’s break these down into categories to explain further:
Formation: This mainly refers to geology and structure. Some formations are well defined, whereas others are not (whether viable candidates for Completion or not). There is considerably less risk these days than due to historical data and geophysics. Blanket formations, proven fields, or even leases (producing or non-producing) can be found quite easily, but even these have risks if there’s faulting or other localized geological phenomena. You may have heard the term “wildcat .” This pertains to a formation or localized anomaly that has been untested (though researched at a minimum) through traditional means. The risk of being non-productive is high, but they are fun (for some) and can give you bragging rights for decades if they hit big!
Completion: You may have read a previous opinion explaining that Completion is where the “rubber hits the road .”Even the most prolific and seasoned operators run the risk of the following:
- Mechanical well failure (rods & tubing, casing, pumps)
- Unwanted water intrusion (pulling too hard or too low in a formation) · Blowout – (too much bottom-hole pressure)
- Lost or broken tools downhole
- Wrong drill mud
- Fracking misreads (both mechanical and chemical)
Risk mitigation tips:
- Find prospects with multiple pay zone candidates and/or leases with existing or historical production.
2. Administer field-proven completion methods with reputable operators familiar with the formations.
There are other risks, and there are different ways to prevent a total loss of investment. Knik Energy will continue to provide updated information to you on these.
Your best bet? Call us, and we’d be happy to explain the pros, and con’s as we see them per deal and, as always must be stated, DO YOUR OWN DUE DILIGENCE.