How Does Gulf Coast Midwest Employ Capital?
Dry holes are inevitable when drilling for oil and gas. The key for prudent investors is making sure dry holes can’t hurt the overall return on capital invested in oil and gas wells. Avoiding investment concentration is the single most important strategy to mitigate operational risk for investors participating directly in oil & gas projects. An average U.S. Gulf Coast developmental well would have a 60% chance of success and a cost profile that looks something like the diagram to the right. An investor who has allocated $500,000 to direct oil and gas projects is given two choices: • Invest $500,000 for 20% of 1 well. • Invest $12,500 per well in 40 wells. While in both cases, the investor has a 60% chance of economic success, all investors given this choice will choose to manage their downside and invest less money in more wells. Gulf Coast’s investment style is designed specifically to avoid wellbore concentration risk by capping what is invested in dry hole cost for a single well at
