Best Way To Invest In Oil: Buy Oil Wells

For the last couple of  years I have researched the best way to invest in oil.  I’m not talking about how to invest millions of dollars but how the average working man can invest in black gold.  From what I could find, there are multiple ways to gain exposure to crude, but with each option came many drawbacks.  For instance, their are oil ETF’s but none seemed to accurately track the price of oil.  They either lagged price movements or reacted in limited fashion to what the actual price of oil was doing.  I wanted an investment with a very close correlation as you would expect with any investment.  The futures market is where you can invest in the actual contracts (1000 bbl per contract) of oil, but requires a ton of money and seems to be very risky for those that don’t have years of experience trading futures.  Then you can always gain exposure by investing in the companies that produce the oil.  With this comes the risk of how well the company is managed, accidents, corruption, etc.  This is where it hit me.  The best way to invest and be as exposed to the actual price movements of oil is to actually produce and sell it.

A&K Production: Hamiter B-1 Gas and Oil Well

So, I know that buying oil wells isn’t exactly cheap which was one of the drawbacks to the futures market.  The difference is that when buying oil wells, you are actually buying the oil production apparatus.  You are buying a stream of income as long as you can keep the stream flowing.  With futures, stocks, or ETF’s you are simply buying the opportunity to speculate, hoping the price goes up.  When buying an oil well or multiple wells, money can still be made if price goes down as long as the price is still high enough to offset the expense of the operation.  It boiled down to I wanted to start and run a small independent oil company.  No risk or speculation there, right?

I’m not so naive to think their is no risk in what I have set out to do.  Each exposure to the oil market has its pros and cons.  Each has a certain element of risk and reward.  But only one option provided both a pure correlation to oil prices and was in the form of an actual business venture.  Given all the options, starting an independent oil company was the truest way to gain exposure to the oil market.

Now, there is more to the story, I must admit.  My grandfather has owned his own oil wells for about 25 years.  It just so happened that he was placing twelve of his wells up for sale during the time that I was learning about my desire to invest in oil.  After contemplating it for a while, I pitched the idea to a buddy of mine that had about six years of oilfield experience and his financial ducks in a row.  Surprisingly, he had actually been thinking about buying oil wells himself.  Everything seemed to be coming together.  We decided to approach my grandfather with our offer to see what he thought about us buying his wells.

We all came to an agreement on terms, one of which included my grandfather mentoring us on the day to day operations of operating oil wells, and decided on a closing date.  There is a ton of paperwork, state forms, bonds, insurance, LLC or company filings, and every other kind of paperwork you can think of that goes into a deal like this; however, having closed the deal two days ago (Nov 1, 2011), I can say it was all definitely worth it.

A&K Production LLC is now in business and pumping oil.  We own 12 deep wells ranging anywhere from approximately 6000′ down to approximately 11200′.  Eight of the wells are currently producing North Louisiana Sweet crude with a few high priority wells that we plan to bring back online in the near future.  All of the wells are artificial lift, meaning they have pump jacks pumping the oil out of the ground, rather than free flowing.  Current production for all the wells combined puts us at about 20 bbl per day.  The oil that is pumped out of the ground is stored in our on-site tank batteries where it awaits an oil truck to transport it to market.  We sell our crude to Genesis Oil in Louisiana.  From there, the oil is sent to refineries to be used in thousands of different applications.

So, our main role is basically keeping the pump jacks maintained, keep the pump jack motors running, maintaining production and maintenance logs, monitoring income vs. expense, and correcting any issues that occur downhole.  This downhole work would normally be extremely expensive, but the wells that we bought came with a 96′ mobile workover rig.  We can use this rig for pulling the tubing, rods, and pump out of the hole.  We can also use it for swabbing wells (another form of oil extraction).  The workover rig is our key to success because we have our own means for working on our oilwells at our own pace and at the expense of our time only.  Whereas it would cost anywhere from $3000-$5000 per day to hire a workover rig to come work.

A&K Production: Workover Rig

After writing all of this, I feel in a little over my head, but I am definitely more confident in our success with this venture versus playing the stock market.  There is also a sense of pride and worth in producing a vital product.  We are bringing a fluid from 12000′ below the surface up to be made into something that is useful and drives our economy.  Just having this opportunity to contribute in such a way is very exciting.

I have found the Best Way To Invest In Oil:  Buy Oil Wells.

If you have questions or would like help doing something similar, don’t hesitate to ask.  I would be happy to elaborate on anything that we have done thus far.

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18 Responses to Best Way To Invest In Oil: Buy Oil Wells

  1. Kevin Neil says:

    Dear Sir
    Although we are based in London we already do quite a lot of business in the US. Our core business is investing in the distressed marketplace, ie. mortgages and property. However, we are now considering diversifying into Oil and having done some investigation we also feel that a direct investment would best suit us. Any help or advice you can provide would be gratefully received.
    If you know of any other Oil wells for sale please let me know.

    Kind regards

    Kevin Neil
    Managing Director.

    • straydog01 says:

      Mr Neil,
      I’d like to pass on my email address to you for further communications on this matter. Please send a quick email to me at the following address so that I may better respond to your inquiry. aandkproduction@gmail.com I look forward to speaking with you and providing any assistance that I can.

      Adam Stracener

    • mohamed says:

      Dear Sir

      We are Oklahoma City Based Oil and Gas well Production Team in USA. Currently we are looking for investors to invest in Oil and Gas Production well. Investors from USA and also Worldwide also welcome to invest in our well program. It’s a 4 well program with high profit and excellent production. You can visit our well site for verification.

      Just click on the link at the left or copy and paste it to your browser and it will take you to the video which is the best way to know about the well drilling process.

      http://www.youtube.com/watch?v=PjfBH-hSYfM

      It’s a private video so you need to provide the below username and password.

      The user name is: hpetror1
      Password: Sevensteps2

      If interested you can reply with your contact details with location, telephone numbers, Skype contacts for video conference and we will arrange a meeting with you to discuss more about the investment in our office in USA. Thanks

      siju@bentleytravelclub.org

  2. Brad says:

    Adam,

    I love the article. I sent you an email to the address that you provided in the reply above. Hopefully you can get back to me.

    Thanks,
    Brad

  3. Pingback: Best Way to Invest in Oil

  4. listeriainterventions says:

    Hi,
    I am thinking about getting into the oil biz by buying a well to begin with. Can you give me an approximate cost of an oil well and the annual cost of operation? Appreciate it.

    Ameet

    • straydog01 says:

      There are too many factors to account for to give you an accurate answer. You would have to look at production reports, expense reports, etc.

    • Randal says:

      I have been in the oil business over 30 years maintaining oil wells both land and Gulf of Mexico.I would like to partner with someone in purchasing a well.I have the knowedge in well production which would save on labor cost.Please let me know if you may be interested in speaking.

  5. Jeremy says:

    Hi,

    I’m looking at buying a few oil wells from a relative of mine…
    1st question… since you bought from a relative as well, how did you negotiate the deal and what terms?
    2nd… where can I find out what bonding, permits, etc. I will need

    Thanks!
    Jeremy

  6. dannis jen says:

    Hi, Adam,
    Thanks for the article is encouraged to buy oil well that I never though before.
    I sent email to you to you.

    Dannis

  7. GeoBenjamin says:

    To the author,

    My coworker and I work as environmental geologists for the oil and gas industry in Colorado and Wyoming. We have an understanding and/or have access to the resources necessary to understand what it takes to maintain a tank battery, the environmental liability risks, permitting, government agency reporting, etc. The question is- how to a couple guys with no money or assets in thier mid 20′s get the money to by an approximately 160,000 dollar well? This on top of many other questions of course.

  8. Bharat says:

    Hello Sir,
    It must be an interesting venture and I hope all the best for you. I was really impressed on your view on how producing oil by yourself protects one from fluctuating marking and we can hoard oil too. Being located in Alberta ,Canada ( Largest oil sands ) in North America I want to make a fortune out of the booming industry. But the first thing is no one is selling a oil well as such. So I’m planning to start from the scratch . The very basic question I’m struck at is who deals with the selling and purchasing of the land and If that land has oil deposit why would some one will sell it?
    Whom should I talk to ?
    I have investors and I have assets to back the project and had dealt with the bank so I exactly know what to tell them.
    Thanks Bharat
    My email is einstine2020@gmail.com

  9. Raia says:

    I’d like to start off by saying, I truly e joyed reading your article and for you even sharing this information at all. I first heard about buying oil wells from my dad and I basically took the idea and ran with it as far as researching it.
    My situation is quite rare because I am a 24 year old undergrad female finishing up my BA in New York. I’m a globalization studies major, business & sociology minor and I don’t have thousands of dollars to put forth, I don’t have any experience. All I have is a passionate interest in buying oil wells, business and a desire to contribute a product to society that’ll beneficial collective to it. Do you have any advice or how I can start or what I can do? Thank you!

    • straydog01 says:

      Raia,
      The first thing I would recommend is to work toward your passion and desire no matter the challenges you face. The oil business is one where you must start at the bottom and endure hardships. Learn the ropes, ask questions, gain people’s respect. Research, Research, Research! Then, ask more questions. Without a lot of money, unfortunately, you will have a hard time purchasing any wells, unless you can entice venture capitalists to fund you. Most banks run from the idea. You may also solicit investors. However, during your “no money” years, it is a great time to just learn the trade. If you have any other questions, please don’t hesitate to ask.

      Adam

  10. drillbudd says:

    This is an excellent blog. It popped up when I googled “how to buy a piece of oil well”. Will contact you on your email and hope to hear from you. Thanks.

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