Introduction     Rules     Agreement       Sale of Assets    Joint Venture

The dealmaker should first iron out the details between the partners and drilling contractor. Once he gains a good sense that everyone has come to a common understanding as to what they have agreed with, he should then summarize those details in the OilFinancier agreement. In particular, he should note:

• that all oil rights mentioned in the agreement belong to the partners,
• the agreement deals only with conventional wells or with only hostile wells,
• the investors have positive cash balances on the day the agreement is submitted to the administrator,
• subsequent and conditional wells are set up, and
• the percentages all add up to 100%.

He should then submit the agreement the administrator. The administrator will send a copy of the agreement to all parties. If all parties confirm within three OF Days, then the well will be drilled. If the drilling contractor has a waiting list for his rig, then the well(s) will be put on that waiting list.

A Fair Deal for Oil Rights Owners of oil rights are rewarded  "overriding royalties," which means they get a small percentage of the revenue if any oil is found under their location. Without getting into a big economic analysis, a fair royalty for exploration rights would be about 10% of revenue; for development wells, 30% is more in line. Having given you this advice, however, I know there will be situations where these assessments are too small or too large. It's best to work your own financial spreadsheets lest the financial sharks get the upper hand on deals you think are quite "fair." Or maybe you want to be a shark preying on the inexperienced financiers.

 Special Notes

It is possible for one partner to drill a well by himself if he has the oil rights, his own drilling rig, and a positive cash balance. But this would not be great strategy for the first 200 OF Days. But it could be useful in the last days as competing financiers race to the top spot.

Dealmakers should be aware if their agreement falls apart, they will be subject to a fine. 

All appropriate drilling costs will be subtracted from each financier’s cash, and oil revenues will be added to each financier’s cash flow.

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