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The Free Rider... . . . is someone who won't put any money into exploration drilling and waits for other financiers to drill around his oil rights to prove or disprove their potential. Free riders, in essence, do not pay for their fair share of the cost of finding the oil reservoir. They come in after the wildcatters and benefit from improved chances of success that comes with development drilling. In the early days of the petroleum industry, free riding was the best way to make money. Let the wildcatters take the risk of drilling five, ten, or even more wells to find the one success. The free riders, with unspent cash in hand, would quickly drill nearby that successful well before the wildcatter could sell enough oil to pay for any stepout well. Free riders will be part of all OilFinancier seminars. In some cases, this may be a deliberate strategy, which focuses on buying lots of oil rights hoping some of them will be proven up later―by others! A free riding strategy has its disadvantages. First, it takes longer to get cash rolling in―so it can only buy a limited number of rights. Second, it doesn't generate the fasttrack promotions, which can be quite important in the first half of the seminar. Third, it is not conducive to forming those cooperative relationships that help make oil deals later in the seminar. But if a financier wants to try free riding, there are no rules against it. Sometimes free riders will happen unintentionally. Trying to negotiate an exploration deal such that all oil right owners who could benefit from a successful discovery are part of the deal―-thus no free riders―will be difficult. But this would be a great negotiation challenge for the really keen dealmakers. Sometimes it's quicker just to find one to four friendly financiers to share the risk, design a financially sound exploration deal, and then put a drill bit in the ground. You decided on how much effort you want to expend to put deals together.
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Copyright ©
- DAVE VOLEK PUBLISHING - All Rights Reserved
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