Special Report:

Digging Deeper Into

Oil Investment Partnerships

By Dr. Roger L. Cory

Every day in America new oil wells are drilled. Many of these drills will result in commercially marketable oil being struck, bringing to the oil investor either a modest monthly check or even greater riches. After all, during the last century perhaps more millionaires and billionaires have made their fortunes in oil drilling exploration than in any other form of investment.

Yet, it is difficult to find one reputable document that offers investors fair and balanced guidelines on how to separate good oil drilling investment opportunities from the rest. Unfortunately for oil investors, there appear to be many more questionable oil deals than acceptable ones.

So how do you locate a reputable oil and/or natural gas drilling company? What are the key elements to look for to identify the standout opportunities?

You will discover the answers in this free report. Astute oil investors no longer rely only on the outstanding tax benefits of oil program participation. Drilling programs must stand up to scrutiny based upon return on investment (ROI) as well. The goal of any investment is to make money over the long haul. Too few oil and gas investors can honestly say they are making an acceptable ROI. If this is you, then this is the report you have been waiting for. If you are just beginning to investigate oil investments, this report may save you a great deal of time, money and aggravation.

Why Invest in an Oil Drilling Partnership?

• You can make a great deal of money! A successful drilling program can result in a substantial monthly income for 10-20 years or more. Most good drilling companies will complete projects within a year. This compares well against other investments that may require years before returns are realized.

• The tax advantages may be the best in the country. The Tax Reform Legislation Act adopted in 1986 provides outstanding tax opportunities even against ordinary income in some cases. (Consult your tax advisor for details.) The IRS has continued to advance such deductions for investors in order to encourage American taxpayers to drill for oil. Every barrel we create on our home soil saves a barrel we have to import from foreign lands; indeed, drilling for oil may be considered a patriotic act. In addition, revenues generated from oil drilling activities in some cases may be considered partially tax-free because you are investing in a depleting commodity.

• It can be fun and exciting. Many investors, particularly sophisticated, accredited investors, invest in oil and gas programs with discretionary funds for an opportunity to hit a big oil strike and perhaps create monthly income for years to come. Drilling partnerships that provide real time investment information to their investors help them feel that they are participating in a true adventure.

• They aren’t making any more of the stuff. You may have heard something about this in the news, but you will be hearing much more soon: the world is having a harder and harder time producing all the oil it needs to fuel growing modern economies. Oil production has now peaked in 20 of the 25 largest oil-producing nations, and more are soon to follow. This is, quite literally, the story of this century, and you can learn all about it by visiting www.mammothresource.com and clicking “World Oil Crisis.”

What is a Fair Rate of Return?

That is one of the most important questions in our discussion. First, let’s make sure you understand the basics of oil and gas revenue. Know these abbreviations:

WI = Working Interest

Generally considered the total cost you or your investment group pays for the cost of the oil or gas project.

NRI = Net Revenue Interest

Generally considered the amount of money you receive from your investment after all monthly costs and mineral royalty fees are paid. Your check each month will always be based on your Net Revenue Interest.

RI = Royalty Interest

The amount of money to be distributed to all Royalty Interest Holders including the owners of the mineral rights of the land where the partnership is drilling. A good rule of thumb is to look for partnerships that distribute back to the investors at least 60% of all drilling revenues. Programs that distribute back less than 60% should be avoided, as they will result in less profits upon a large oil strike.

In natural gas partnerships, however, it is common to see NRIs greately reduced (sometimes under 50%) due to the dramatic increase in gas drilling costs and the typically much longer well life compared to oil.

We offer a glossary of terms for those wishing to learn more about investing in the oil industry. Take a minute and visit these critical terms and definitions at: www.mammothresource.com and click “Glossary.”

Some other rules of thumb for you to know:

• The larger the number of units being offered, the smaller the NRI.
• Generally, oil partnerships will raise their unit price in order to increase their NRI because they can offer fewer units to close the investment and begin drilling. Be careful of drilling programs charging outrageous drilling unit prices because that is one way to mask a low rate of return.
• Programs offering NRIs less than 2% should be analyzed more closely to make sure the true drilling costs are not inflated, and that the oil or gas field has independent data indicating a strong potential for success. Once again, most natural gas programs will offer NRIs less than 2% in order to offset the increased drilling and completion costs.

Total Working Interest (WI)

______ (# Units) X ______ (Amount WI Per Unit) = ______ (Total WI)

Total Net Revenue Interest (NRI)

______ (# Units) X ______ (Amount NRI Per Unit) = ______ (Total NRI)

A Word on Well Completion Payments: Many oil and gas drilling exploration companies structure their investment offerings to include additional payments that the investor must make (or lose their total investment) upon indication of oil being found. This can be a dangerous investment structure. Consider:

• First, what are the parameters for calling for completion payments?
• Are any additional profits being made on the completion investments?
• Will the company reveal the true costs of your well completion?
• If not, how can you know that the investment company’s call for completion is not simply a means to gain more profit from a dry hole?
• Will the company reveal their internal statistics on how many calls for completion they have had over the past few years, and what ROI percentage was returned to the investors in these cases?

Investment companies that will not offer you verifiable numbers for the information required above should be viewed with extreme skepticism because they very well may just be taking further advantage of their investors. Instead, look for drilling companies that specialize in completion-free partnerships. Let the company absorb this cost.

Making Geology Fun

Before your eyes roll back in your head, stay with me for just a moment longer. Geology can be fun and interesting, especially when real money is at stake.

There are only a few different types of geological drills available to most investors. Working from the strongest and safest to the weakest and riskiest they are:

“Stripper Wells”: Are generally considered safer oil investments because you are investing in wells that are already producing oil at a commercial grade level. However, your rate of return will not be nearly as great. Demand at least a 2 ½ times rate of return or more within a year or so. Make sure you are given authentic records of the well histories. One question to ask your investment company is if the wells are so valuable, why are the owners selling the mineral rights to them? Many times the sellers have uncovered future problems. This investment can work, but you must know what questions to ask and how to verify the answers.

“Infill Drilling”: Drilling right in between successful, commercially producible wells, normally on all four sides of the proposed infill drill site. The idea is to closely track where the oil is by being able to determine an equidistant point between each producing well. Drillers will most often use drill logs from the previous infill drills to determine the depth where oil is likely to exist in the region.

“Offset Drilling”: A lot like infill drilling, only there is usually only one successful drill nearby. Obviously less safe than infill drilling due to less drill region information, but these drills can be very profitable because the drilling rights are usually less costly and successful wells often run together and close to one another.

“Wildcat Drilling”: This type of drilling was made popular in the early days of oil drilling by pioneers who often used “divining rods” to scout out areas which have no real history of oil success. Demand top rates of return if you are considering this type of risky investment.

One Last Word About Geology

Take a very close look at the part of the country your investment company is drilling. Be cautious of “false pressure” regions that will often result in initial oil strikes only to be followed by disappointment soon thereafter. In these cases, pressure release of the wells reduces their long-term viability. Ask your oil company how many calls for completion they have had and what is the average ROI on those particular drills. A good company will make that information available.

Legal Stuff You Must Know Before Investing

Make sure your investment firm is either a registered Broker-Dealer or is currently underwritten by a registered Broker-Dealer. Make sure that registration has been recorded in your state.

Most state administrators who have jurisdiction over Private Placement Memorandums (PPMs) strongly favor investment firms who register their offering within the state(s) they are offering their investments in, as well as their home state where their office is located. A Broker-Dealer (B-D) certification means that the company has greatly increased their verifiability as well as compliance with ALL appropriate state and federal laws. B-D firms have an attending Compliance Officer available who insures that only persons who have the requisite investment funds available are allowed to participate. This will further protect your partnership. They also insure that all documents are properly filed and recorded in order to insure the investor is approved into the partnership and will receive all returns on investment due.

We strongly urge that you reconsider doing business with any investment company that cannot provide you their Broker-Dealer registration number and proof of certification in the state in which you reside.

Series 63/22 Agents

Each state offers potential agents an opportunity to take the Series 63 and/or 22 Securities Exam in order to qualify them to operate as an Issuer-Agent. These are not easy tests to pass; they aren’t meant to be. In addition, each Issuer-Agent usually must be registered with each project offering within certain time guidelines.

Once your phone conversations advance to a level of discussion about the specifics of any offering, you should ONLY be speaking with an Issuer-Agent or an officer of the oil corporation. Do not continue discussions with those posing as Brokers without proper certification.

General/Limited/Working Interest Partnerships

What is the legal structure of your oil drilling partnership? Generally speaking, I believe this is the most dangerous and misunderstood area for investors considering an investment in oil and gas.

Most oil companies offer General Partnerships because the tax advantages can be superior. They will tell you that you can write off your investment against ordinary income or the investor’s wages, thereby reducing the investor’s tax base. While this might be true in some cases, you should always consult your tax advisor for how this type of tax structure would affect you or even if you need it at all.

Limited Partnerships & Working Interest Partnerships

These partnerships combine a restrictive covenant that generally protects and limits the investor’s liability to the amount that you have invested. Working Interest Partnerships are a fairly new way to invest in oil and gas that offers all the protections of a limited partnership with the potential of some additional tax benefits. As always, you should consult your legal advisor about which legal structure is right for you. Don’t be surprised if you are advised to invest in a program that maximizes your upside investment potential without undue risk.

Those of you investing in General Partnerships must make sure that your program converts the General Partnership structure to a limited liability structure after the drilling and completion phase is completed and initial tax advantages taken. Most good firms, when offering General Partnerships, provide for this conversion in their Private Placement Memorandum to allow the greatest tax advantages both during and after the drill.

A Few More Odds and Ends

• Know Thy Driller – Demand information from your oil company about whom they have contracted to drill each well. Investigate the drilling record thoroughly. Are they successful? How do you know? Have they achieved any awards or certifications? Who will be making the exact drill site decisions? Based upon what drilling criteria? Most oil companies will begin to run away from you once you begin to ask these questions.

• Demand Full Disclosure – Companies that operate “straight-up” have no problem keeping you constantly informed about what is going on with your investment. The miracle of the Internet has given some investors the chance to check out the drilling progress on-line. Don’t be afraid to get the answers to your questions. Providing answers is also their job. Oil investment firms that offer clear and consistent lines of communication, if they communicate at all, are critical for your success. Ask how they will communicate with you.

• Multiple Well Partnerships – No doubt they are best. There can be some excitement about taking a shot at that one deep drill for big oil, but the oil game is about taking as many shots as you can to increase the odds of hitting that big well. Batting percentage is not nearly as important as getting up to the plate more times. Multiple well programs give you more for your investment buck. As long as the company adheres to the principles we’ve noted in this Special Report, the more drills the better!

And Finally:

Investing in an oil partnership isn’t for everyone. The ideal investor would generally be an accredited/sophisticated investor by investment standards. They can withstand losses without it affecting their standard of living. If you cannot do this, you should not invest with any oil and gas company even if they are reputable.

For those who can afford the risk and dream of hitting the “black gold” under our feet, I hope that this report opened your eyes to the world of successful oil drilling partnerships. Have fun and success and best of luck to you in all your investment decisions.

Dr. Roger Cory serves as President of Mammoth Resource Partners, Inc., an oil and gas exploration company in Cave City, Kentucky. He has a lifetime of experience in both law and business spanning more than 25 years. Dr. Cory received a Bachelor of Arts – Journalism Degree from California State University at Fullerton and holds a Doctorate of Jurisprudence from Pepperdine University School of Law. He currently possesses a Series 63 Certification through the Division of Kentucky Securities.