Here is a top-10 summary of our well selection guidelines:

  1. Through dollar-cost-averaging spread your drilling budget over a diverse spectrum of well projects – never exceed a preset maximum per well allocation – no matter how promising a prospect appears to be.
  2. Try to include as many of the safer offset wells and infield drilling prospects in your portfolio as possible.
  3. Exploratory wells as a minimum should have multi-pay zone objectives, validated 3-D seismic interpretation and associated well control.
  4. Only participate in wells that will “probably” (as opposed to possibly) yield a blended annual tax-weighted return through payback of at least 30% and accumulate a reserves base of 3Xs ROI through the life of the portfolio.
  5. Plan on a 50% completion rate – continuously strive for 60% or better.
  6. The ideal crude oil to natural gas production ratio for the portfolio should be 1 bbl : 5mcf
  7. Anticipate up to 20% in drilling/completion cost overruns.
  8. Expect 15-20% annual production depletion on a balanced well portfolio.
  9. Understand that each well is a separate business unit subject to operating expenses and taxes and that any unprofitable well(s) must be quickly identified and divested.
  10. And last, but certainly not least, know your prospect generators and operators. Deal only with those that have proven track records and reputations for honest representation and efficient management.
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