DALLAS, Jan. 13, 2016 /PRNewswire/ — “It has been an interesting year to be in the oil and gas business,” states Jack Nichols of Redhawk Investment Group. Market conditions certainly have tested patience, prowess, business models, and operational capabilities. Even with dramatically lower oil prices, Redhawk has continued with its business plan and continues to send out revenue checks each month to each investor on all their projects. This is despite a 70% drop in the price of oil since these projects were conceived and budgeted. It also helps immensely that the Redhawk companies have zero debt. The lights are on at Redhawk and everyone is at the office working! We continue to ratchet every dollar from our assets and squeeze every cost. It is just what you have to do to keep things going today.
So what is the next step? Mr. Nichols says it is to be smart; to not follow or be overly influenced by the legions of naysayers we read every day or see on the television 24/7. They talk about the ‘bottom’, ‘lower for longer’, ‘blood in the streets’, and it goes on and on and on.
“It is difficult not to get caught in the trap and be convinced to play the pundit’s games. ‘Let’s find the bottom’, ‘let’s catch it just right’ … is an enticing temptation that is driven by a certain amount of greed and does create a bit of an adrenalin rush when participating. However, is it the smart thing to do? I tend to think not.”
Many investors have evaporated huge sums of money trying (and failing) to call the bottom of oil.
Quoting from an article published in Bloomberg, by Eric Balchunas, on December 21, 2015:
“A wide range of investors collectively spent about $24 billion over the past 18 months trying–and failing–to call a bottom in oil. Never in the history of exchange-traded funds has one particular category drawn so much money from investors trying to play a rebound.”
A Different Approach to “Calling the Bottom”
Mr. Nichols, Managing Partner of Redhawk Investment Group, says the key to success in profiting handsomely from fishing for the ‘bottom of oil’ prices are to acquire hard oil and gas assets PRICED to the hard bottom of the market.
Redhawk has the same price relative sensitivities and adheres to the same philosophy, but elects to ‘call the bottom’ in a more realistic, economically practical manner.
Redhawk acquired 3,800 prime acres in one of the most productive oil fields in North America, the Permian Basin. This acreage holds 70 wellbores drilled originally by Gulf Oil Corporation in the late 1980’s and early 1990’s ripe for revamping. As Mr. Nichols says, “It’s all about location, location, location,” and it cannot be said better than the Oil and Gas Financial Journal did in an article published on December 17, 2015 by David Michael Cohen which stated:
“The hottest play today is the Permian, where even at today’s prices turning to the right still makes money. PLS analysis shows Permian acreage still commanding an average of ~$15,000/acre with a high-water mark of $34,800/acre-RSP Permian’s $274 million Midland Basin bolt-on in August. More recently, EOG Resources paid ~$13,000/acre (after adjusting for production value) in a $368 million Delaware Basin bolt-on acquisition in November. The Permian is attracting Chinese attention, with real estate developer Yantai Xinchao Industry announcing a $1.3 billion acquisition from private producers Tall City Exploration and Plymouth Petroleum.”
The 70 primary vertical wells acquired by Redhawk were drilled in the late 1980’s and early 1990’s, to no more than about 5,000 feet. They have produced about 2,500,000 barrels of oil to date representing only 4% of the oil in place. The company acquired the 3,800 acres for $3,500,000. Redhawk recognizes the big difference is owning a hard asset with producing properties just waiting to be reworked with new technology and techniques. Even oil going to $20.00 won’t kill it and wipe out the money.
Another Big Payoff
Work is already in progress revamping this field. The first workover was on an old Gulf well still producing 4 barrels of oil per day. Redhawk’s operating partner, StableRock Energy, removed the pumping unit and pulled the tubing and rods. The well was cleaned up and StableRock shot 258 perforations in a 200 ft. zone that previously had 12 perforations. The well was put back together and cranked up, and started producing 45 barrels of oil per day at a cost of $88,000. That is $88,000 for an additional 41 barrels of oil per day. It does not take a mathematical genius to figure out what fantastic economics that is.
“The whole point,” says Jack Nichols, “is for the investor not to be penny wise and pound foolish! The best way to benefit from this market is to ‘find the bottom’ of this market in the Permian Basin and to benefit from it by participating in the ownership of a hard oil and gas asset.”