Investing in Oil and Gas Checklist 2

Checklist of General Risks in Oil and Gas Deals

Other working interest owners may not pay their pro rata share of expenses. The partnership or joint entity may lose its value as a result of a lack of available capital at some time in the future. The cost of plugging and abandoning a well can exceed the value of any equipment that may be salvaged from the operation. Plugging and abandoning a well is likely to be performed at a time when there is no revenue from the property to offset the expense of plugging and abandoning a well. A plugging operation costs money and partners must provide the cash money needed to perform this operation. Statutes and regulations mandate that wells be plugged and abandoned by following procedures set by the government. The oil and gas business is subject to many government statutes and regulations. Compliance with environmental regulations may cause delays and increase costs. The dates of any distributions cannot be predicted and it is possible that no distributions will ever be made. If the partnership fails to timely pay any of its obligations including delay rentals and shut-in royalties then the partnership may lose all of its interest in the property and each partner may lose their entire interest. Certain regulations impose penalties regardless of whether or not they resulted from negligence. Taxation, regulations, and changes in the law can adversely affect an oil and gas investment The activities of the partnership or join entity may expose it to liabilities for environmental matters. Litigation against the partnership or joint entity and its associated expenses may result in the loss of the property, loss of revenue, and the loss of the economic viability of operating the property. Legal fees and related expenses may greatly exceed the normal operating expenses anticipated for a property. Crude oil and natural gas prices can change at any time and price changes can affect financial result. If the partnership or joint entity is found to be in violation of a regulation or law it may lose is right to produce oil and gas and may be subjected to fines and penalties. Every oil and gas well eventually reaches its economic limit, the point at which the costs and taxes of operating a well equal or exceed the revenue generated by the sale of oil and gas. Impurities in oil and gas may raise the cost of preparing the product for sale and lower the unit price received for the product.

Oil and gas leases may be obtained without warranty of title. Title opinions may not be obtained. Title opinions do not guarantee good title. Title defects may exist.

Other problems including right-of-ways may also make the sale of natural gas impossible. Oil and natural gas prices have fluctuated in recent years and they may decline in the future. Assumptions or projections of product prices may prove incorrect. Interest acquired by the partnership or joint entity can be no greater than the interests granted in the oil and gas leases held by the partnership or joint entity.

800-Point Oil and Gas Investment Checklist (Investing in Oil Gas 2015 - Mike May, P.E.)

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