Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
My friend and I are going to start purchasing land rights to properties with oil and gas on them.
The way it works is you buy these properties for a certain amount of money, lets say $1.2mil to make it easy. They already have people operating the property so you are basically paying to have the rights to receive a pay check from them. Lets say your "pay check" averages $100,000/month - the amount goes up and down with the market rate of oil prices. So you pay $1.2mil upfront to get payments of $100,000 over a long period of time. You will break even on this well after one year, and receive pure profit after that time. Now mind you, not everyone would be able to profitably buy these properties. But I think with the right skill set you can.
My friend and I are going to start purchasing land rights to properties with oil and gas on them.
What problems can you think of?
Well, to begin with we could critique whatever it is you consider to be the foolproof way of knowing which pieces of land actually have oil and gas on them and to what degree of volume and difficulty to extract so that a er, rational price can be determined on which to base this money making enterprise and secondarily, once those parcels are identified how you propose getting rid of the party who tied up those mineral rights 20, 40 or 100 years ago.
Knowing your proposal, I'm curious if you are even aware that the speculation you propose is already filled with thousands of "energy companies" who have thousands of "landman" people employed specifically to locate properties that are likely to have oil/gas/mineral rights be developed?
As I live in an area and own land with those rights which is currently a hot property for development right now, with active surveying, mapping, seismic testing, and new oil wells being drilled around my region (SE Wyoming) ... I've personally been approached by 20+ landman and their respective companies. Some of them leased their rights for $25/acre ... from folk who thought they'd hit a goldmine of newfound wealth. Some of us held out for thousands per acre ... and it's a gamble in the industry from that point that the exploration will lead to an actual producing well on the leased properties in due course.
One of the key issues in any business is to know your competition, which you've apparently not researched at all. Oil/Gas/Mineral rights/ownership, development, and speculation started in this area of the USA back in the 1860's (and certainly earlier than that in much of the USA) ... are you aware of how long a history this type of investment speculation has been around? Do you have any idea as to how many well funded competitors you'd have for this business? Do you have any idea how little a drop in the bucket your $2mil budget is compared to your knowledgeable, experienced competitors?
You might want to even look at the Fed oil/gas leases auctions of recent history. Some of those have been averaging $3,000 per acre + royalties of 18% on any potential profits.
From the limited partnership prospectus doc's I've been offered through the years, I'd say that you don't have enough of a budget to be anything more than a limited partner in one of these proposals ... and nobody that I can think of would ever loan you a penny so you could either lease or participate in one of these very high risk offerings. Many of these partnerships were structured so that the only people who could walk away whole from the speculation were the general partners; the limited partners (that's the small investor, like me .. who at least has some money to put into the show) typically didn't get any ROI unless the investments hit a real oil strike with long term producting wells. Most of these investments had poorer odds of a payout than a roll of the dice in Las Vegas, and a poorer payout, too.
Indeed, the opening pages of those prospectus documents always state and restate and re-emphasize and remind you again that you cannot be an investor in these limited partnerships unless you have a certain minimum net worth well in excess of your investment and require that you can not only afford to lose all the money you've placed into the partnership, but can afford to lose even more funds if the need arises to cover their current operations beyond the initial investment.
You simply don't have the ability to be a player in this oil business.
Don’t take this the wrong way or anything, but here is my opinion.
What are you doing any differently that these investors can’t just do themselves? Investing in property is simple and requires no special niche talents. Basically you’d just be a middle man…for a hefty fee. What’s to stop these VCs who are interested in such ventures from eliminating the middle man and just doing it themselves and claiming 100% of the profits and 100% of the ownership? You bring nothing to the table except an idea which is as old as the oil boom. In short, your value proposition is very underwhelming.
I had the fortune to talk to a successful business owner just the other day. As someone who attempted a small business ( made some money), I am still learning what makes a good business. He basically pioneered the Heat exchanger method for LED material growth, in short. It was a side job which eventually turned into his own business. 30 years later, he sold to a larger company but he was a million dollar company long before that. His suggestion? Find something niche that is relatively unknown. While that isn’t the be all, end all of ways to open a business - your proposition is as old as European times …buy land, expect a ROI.
One of the key issues in any business is to know your competition, which you've apparently not researched at all. Oil/Gas/Mineral rights/ownership, development, and speculation started in this area of the USA back in the 1860's
He said stay out of saturated markets. Got news for you, the energy market is a trillion dollar industry that is VERY saturated. Most of the big companies are vertically integrated and are working on all fronts to secure the cheapest business possible. What makes you think, with no experience or money, that you can actually even come close to competing with them? If you can sell that to a AA or VC, you might have a shot. But so far, it seems you are struggling to sell it to a message board…
A friend and I have a brilliant idea for a start-up business. The business model is pretty straightforward, which I will soon explain, but I have some other issues I was hoping to get everyone's input on.
We are trying to raise capital for financing, in the range of $500k to $2million dollars. With this money from investors, we will leverage it with a bank loan and try to get an amount in the range of $2 to $6million dollars.
The way we are hoping to structure financing, is to offer coupon bonds that would offer a certain rate of return each year, paying the investor off in 5 years. We would be paying both the interest rate each year to investors and the monthly small business loan. We think this would be the best financing option without having to give away equity. (given that we are able to find the initial investors)
My question is: What other financing options would be viable for raising the amount of money we need? Both debt and equity ideas are being considered at this point.
First of all, if you had a business idea that was uniquely compelling, you shouldn't be posting it on an internet forum where your idea could easily risk being stolen. Not something a savvy entrepreneur would do. But I'm sorry to say that your idea is nothing new - people are all over this, and it's not an easy way to make a quick buck. You're not the first to have this idea. I also have to wonder what makes you think that you'd break even after one year.
Second of all, if you managed to convince any potential funding source of the unique value in this, they're going to demand equity before you get their cash. This is how real startups that actually go somewhere get funded: you get a venture capital fund or a high-value angel investor to give funding in rounds (for which you must meet certain milestones), and they take a cut of the equity. There will also be negotiations about what aspects of your business plan they can control - i.e., they may have some representation on your board of directors.
Third, if you want to just get a loan in the amounts you're talking about, then you're going to need to pony up some good collateral assets for the lender - and have a really solid credit history. I'm not sure how they'd look at your land rights. These days, banks are especially careful with their loans.
Last edited by ambient; 05-28-2011 at 11:30 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
