The Oil & Gas Investor’s Revenue Path

Our experienced and conscientious investor team has been participating in the Oklahoma STACK/SCOOP since 2017. This longevity has provided a valuable understanding of the area and the operators involved.

These are two critical components to choosing what wells to participate in. We utilize a cultivated and extensive network of important industry professionals like landmen, geologists, and oil and gas attorneys to get the best results.

Working as non-operating interested parties, we get the additional benefit of partnering with publicly traded companies and large independent operations. This structure gives us the right, through a mineral leasehold, to participate in a well or group of wells with the controlling operator.

Forced Pooling laws are the legal mechanism for these partnerships. Although Thoroughbred already holds acreage positions in and throughout the STACK/SCOOP that have yielded excellent results, we are constantly monitoring the landscape and our preferred operator’s activity, looking for new trends and opportunities to acquire new leases.

This is a breakdown of our process from start to finish for acquiring a new lease to generate revenue from a new well.

Landmen are the boots on the ground of all oil and gas operations. From field operations to legal and environmental regulations, they keep tabs on the state and movement of the industry as well as specific wells.

Leveraging our extensive network, we know which operators are leasing, where they’re located, whose filing for drilling permits, and where forced pooling orders are being issued. This is not a simple process, but our seasoned landmen often find the perfect opportunity to make a strong investment.

Our typical acquisition will be in an area where the production history is reliable and run by an operator we trust. Additionally, the drilling of the well is imminent, the pooling order has been issued, and the proposal process is underway. These are all strong indicators of a good investment.

When the time comes, the controlling operator will send each mineral lease owner in the designated drilling unit (typically 1280 acres for a horizontal well) a well proposal. We formally elect to participate once investors approve the estimated cost and the working interest amount the operator has on record for the lease.

All agreements are legally and properly documented and sent back with the initial payment to secure the investor’s interest. At this time, the only thing to do is wait for production to begin.

During this phase, the well operator prepares the drilling site and installs the rig. The rig will first drill the vertical section of the well to the desired target depth, and then the directional crew will drill the lateral section of the well to the predetermined terminus location.

The rig will then be moved off-site so the completion crew and equipment can be set up to frack the wellbore. Fracking is a type of hydraulic fracturing that extracts oil and natural gas from shale and rock formations.

While generally faster than the drilling process, fracking is fairly intensive, requiring 1 to 2 weeks and extending into multiple stages. In some cases, we’ve seen more than 50 stages in a single frack design. As this process continues for 2 to 3 months, the operators will provide daily reports to the working interest owners so they can monitor the progress.

During this phase, the operator will prepare the site to begin flowing the well back prior to turning the well over to production. This is called flowback. During the flowback process, operators will get the first indications of future well performance.

These indicators include flow tubing pressure, daily volumes of water, and the oil and gas being produced daily from the various choke sizes. In the beginning, most wells with big frack recover primarily frack load water. As the water is removed from the wellbore, you will see natural gas first and then oil if the well produces liquids.

As the frack load is recovered, the recovery rates increase until they hit peak production. In most cases, this is the point when the well is turned over to production teams and will then be managed by the production department. Daily reports on volume and activity will continue throughout the flowback process.

At this time, Thoroughbred Ventures is monitoring the daily production and waiting for the well to be placed into pay status. This means the well is ready to generate cash flow through production and lease costs for all interested parties.

Getting to this point usually requires 5 to 7 months for the operator to complete the final title work, set up the pay deck, and send out division orders. Now is the time when all our hard work and precision investing expertise will pay off.

Once we receive the division orders, investors are paid within that month or the following month. The first payment includes a catch-up payment to cover the funds for all the previous months of production before the pay status was reached. The first payment will be 30 days in arrears for oil and 60 days in arrears for gas.

With the first payment, we also receive the Joint Interest Billing (JIB) statement detailing all of the expenses and our proportionate share of those expenses. From this point forward, the operator will issue the monthly cash flow and JIB funds.