Why Rework Oil Deals Make Sense Now

Re-completing an older oil well can make great economic sense with oil prices above $50 per barrel. As an investor, two important factors that can not be avoided are cost and risk. Re-entry or reworks, as they are called, when examined on a cost and risk basis can be attractive candidates for further research.

As we all know too well, even with the greatest technology, dry holes do happen when you drill for oil. As an accredited investor, if you can not bear the risk of a dry hole, you should not be in the oil game to begin with. If you are an accredited investor, but would like to enter the oil markets slowly, consider looking at a reentry or rework deal.

The advantage to these type of deals is that you know ahead of time what the original owner found downhole. Careful analysis of logs can yield potential zones that were never exploited. Also, since many older wells were drilled, new technologies such as the GasGun and Radial Jet Enhancement have evolved and can boost production significantly. Petroleum engineers can even make calculations as to the amount of oil potentially recoverable based on log analysis.

Drilling a new well is not a cheap proposition. I recently was sent a quote from one of the largest contract drillers in the midwest for a 4000 foot well. Assuming no problems, it would cost over $240,000 to drill and complete a well. Also, site prep fees can be reduced because the location is already accessible which is important in hard to get to locations and the survey/plat simply needs to be updated. If costs are lower, risks can be considered lower because investors get a faster return of investment dollars.

One final advantage is time! There is a huge waiting list for rigs to drill new wells. In the meantime, there are thousands of wells that could be re-entered or reworked. As in any oil deal, make sure you do your homework. Re-works do involve risk and success is not a sure thing. Before I commit to a new re-work project, I try to remember what my old high school track coach always told me.......the 6 P's, PRIOR PLANNING PREVENTS PISS POOR PERFORMANCE!