BigDog, now this is making more sense, he is offering direct working interests, not net royalty interests. This aligns the tax benefits better.
But as you say the return appears to be uncompetitive. Heck, some of the E&P MLPs are still yielding 10% with a 110% distribution coverage, so this translates to 11%, and that is for a diversified portfolio of existing production vs. a single asset. Also, I believe the going rate for selling existing production on the various oil & gas property sales websites is about 60 months worth of monthly net cash flow (i.e. a 20% return).
If your buddy sells this project out under these terms, I would like to get in touch with him, because he would be a good guy to partner with. My consultant guy that I work with is always looking for good waterflood projects, and just recently, after a lot of DD, his big client and he decided to pass on one. If you can lay off some of the risk by offering only a 15% return, that that might make a deal like that one work. |
