Crude energy-guide-to-oil-gas-investing

DIRECT INVESTING IN OIL WELLS

INVEST DIRECTLY IN U.S. OIL & GAS WELLS & OWN A PIECE OF THE AMERICAN OIL BOOM


Crude Energy: Leading Direct Oil Investments

Once it was Spindletop. Now it is shale, and America is

gushing once again. There has never been a more oppor-

tune time to invest in US oil. Through direct participation,

sophisticated investors can diversify and reinforce their

portfolios with a stable commodity that not only enjoys

steady demand, but is expected to continue to boom in

years to come.

The amount of oil that we are getting out

of shale formations with new technology,

such as fracking, represents only a small

percentage of what is actually in place in

that rock. The American oil boom is going to

last for a long time to come, and the possi-

bility of ‘Peak Oil’ has now faded into the

realm of myths.

– Parker Hallam, President, Crude Energy

At Crude Energy, our primary goal is to increase the value

of acquired oil and gas properties by employing the latest

advancements in technology to exploration and extraction

to put direct investors in oil and gas wells on the fast track

to attractive, long-term revenue streams.

Based in Dallas, Texas - on the frontline of the American oil

boom - Crude Energy offers oil investment opportunities

through direct participation programs that give investors

the opportunity to get in on the ground floor of oil revenues

flowing through wells, participate directly in the cash flow

and enjoy unique tax benefits.

The experts at Crude Energy can help guide you through

the process of direct participation from start to finish,

ensuring your peace of mind and your piece of the shale

revolution, which has catapulted the United States to the

top position in global oil and gas production.

Invest Today: (214) 935-1583 I [email protected] I crude.com I 02

http://www.crude.com

http://www.crude.com/invest


Welcome to the US Oil Boom: Your Best Investment Yet

Massive reserves of oil and gas locked deep beneath the

rock surfaces are accessible for the first time in American

history, ushering in a shale revolution on the back of

tremendous advances in drilling and extraction technology.

A combination of new horizontal drilling and hydraulic

fracturing, or “fracking”, has rendered the United States the

world’s biggest oil producer, overtaking Saudi Arabia and

Russia.

Hidden amongst all these astounding figures is another

boom within a boom that is truly American in every sense of

the word: Not only is the US oil and gas sector growing

soaring, but this market is open to private investors who

wish to participate directly. It’s no longer simply a

playground for big-time brokers and investment bankers.

These simultaneous booms are feeding off each other to

create an enormous amount of capital to drill, drill, drill and

earn, earn, earn.

For 2014, daily US production of crude oil and natural gas

liquids has exceeded 11 million barrels. US crude oil

production alone averaged around 8.6 million barrels per

day in August 2014, representing the highest output since

1986. Production is projected to continue to soar right

along with global demand, which is expected to increase

by more than one-third - from 87 million barrels per day in

2010 to 119 million barrels per day by 2040.

The next five years will be the biggest boom ever. Oil and

condensate output is expected to rise to 9.9 million barrels

per day in 2019, reaching 1970 highs.

U.S. natural gas production by source in the Reference case. 1990-2040

U.S. Field Production of Crude Oil

1990

Trillion Cubic Feet

History 2012 Projections

0

10

20

30

40

2000 2010 2020 2030

20081500000

1750000

2000000

2250000

2500000

2750000

3000000

2009

U.S. Field Production of Crude Oil (Thousand of Barrels)

2010 2011 2012 2013

2040

Shale Gas

Tight Gas

Lower 48 onshore conventional

Lower 48 offshore Coalbed Methane

Alaska

Figure MT-44.


Contact us for more info on investing with Crude Energy: (214) 935-1583 | [email protected]




The Technology: What Makes it All Possible

While the US oil boom has been fed by an increase in

overall oil and gas wells, the main trigger has been new

technology that has made it possible to extract oil from

places that were previously inaccessible, particularly out of

shale rock.

Advances in technology now allow us to reach greater

depths, faster and more efficiently, and to produce more

from each well. Today, the most productive wells are

producing up to four times as much as their counterparts

were a decade ago, according to analysis Energy Informa-

tion Administration (EIA) data.

most efficient method of extraction to get you on the road

to revenues.

Conventional or Vertical Drilling: This is the most tradi-

tional—and generally the cheapest—method of drilling. It

involves drilling wells vertically from the surface straight

down to the pay zone.

Horizontal Drilling: This is newer technology that enables

drillers to make sharp turns in the drilling path and run it

horizontally along a thin pay zone. This type of drilling

also enables multiple well bores along the drilling path.

So while horizontal drilling is a more costly undertak-

ing, it also gives the driller more well bores from which to

extract.

Slant Drilling: This method of drilling involves drilling at a

30° to 45° angle in cases where it is necessary to

minimize surface environmental disturbances due to the

proximity of a lake, for instance. Slant drilling allows

drillers to reach under the bed of a lake by drilling from

onshore and angling the path.

Directional Drilling: This is the latest advancement in

drilling, which allows for a change in direction and depth

multiple times within a single well bore, much the same

way a plant grows roots.

Once a well is drilled, hydraulic fracturing enters the fray in

some of the tougher geological venues. Hydraulic fractur-

ing is part of the production process, not the drilling

process. It employs the use of fluids and other materials to

create small fractures in a formation with the goal of stimu-

lating production from an oil or gas well. The fracturing

creates a path that can exponentially increase the rate of

flow of oil and gas through the well.

The advent of horizontal drilling combined with hydraulic

fracturing has been the core of the American oil boom. And

while these techniques make drilling more expensive than it

used to be when explorers simply drilled a hole in the

ground and oil gushed out, they have also unlocked forbid-

den reserves and boosted production exponentially.

As a potential investor, it is important to understand how

wells are drilled, the various types of drilling techniques

employed, and how location and geology determine the





The Shale Formations: Where It All Comes Together

within its confines, including the Cline Shale, Avalon,

Wolfcamp, Bone Spring Field, Spraberry Field, and the

Yeso Oil Play.

The Anadarko-Woodford Play: This is a crude and liquids

play in West-Central Oklahoma, running through the

Anadarko Basin. Depths range from around 11,500 feet

to 14,500 feet

Granite Wash: This is a multiple-play shale in the

Texas-Oklahoma Panhandle, with stacked formations

reaching 15,000 feet.

The Niobrara: This shale play is located in the Rocky

Mountains, overlapping Colorado, Wyoming, Kansas

and Nebraska. Wells run slightly over 6,000 feet.

Accounting for the bulk of US shale oil production are the

massive oilfields in the Bakken, Eagle Ford and Permian

Basin.

The Bakken: This shale play is located in Eastern Mon-

tana and Western North Dakota, reaching into parts of

Saskatchewan and Manitoba, and represents one of the

biggest US oil developments in four decades. Wells here

run around 10,000 feet deep.

Eagle Ford: This shale play runs 400 miles from South-

west Texas to East Texas and is a fracking haven that has

as much gas as it does oil.

The Permian: The Permian Basin is a massive Texas-fo-

cused shale play that includes a host of other plays





What is Direct Investing in Oil and Gas?

& gas production, Texas remains the biggest producer of oil

in the United States, with some 11.5 billion barrels of crude

oil deposits—or one-third of all known US reserves. Today,

Texas oil accounts for nearly 36% of all US oil production.

The Bakken, Eagle Ford and the Permian Basin are each

producing more than 1 million barrels of oil per day, with the

Permian leading the pack at 1.6 million barrels a day.

While the Bakken has allowed North Dakota to quadruple oil

natural gas wells, with the investor owning a portion of a well

and receiving a share of any income generated by that well.

What sets direct investments apart from traditional stocks

and bonds is that private individuals can invest directly by

purchasing fractional ownership in tangible assets such as

an oil or gas well and then reap the potentially huge rewards

of well production through a steady, long-term income

stream, while at the same time benefiting from special tax

deductions.

Most investment portfolios are comprised of stocks, bonds,

cash, mutual funds, or ETFs. Before 1930, fewer than 10% of

Americans were shareholders of public companies. Today,

54% hold shares in public companies. This is now changing,

too, with the new trends favoring expansion of investing in

private equity and hedge funds on one hand, and in tangible

assets through direct investing on the other hand.

Direct investing in oil and gas wells allows private investors to

directly participate in the drilling and completion of oil and

02007 2008

Barrels/Day

Permian Basin

Eagle Ford

Bakken

2009 2010 2011 2012

Daily Oil Production: Permian Basin, Eagle Ford and Bakken

January 2007 to August 2014 (est.)

2013 2014Source: Energy Information Administration

2015

400,000

800,000

1 Million

1,200,000

1,600,000






How You Invest

investing in. Oil and gas companies typically have multiple

prospects, but do not independently have enough working

capital to drill each and every one on their own.

To facilitate the drilling of multiple wells, companies are

willing to share a portion of the profit in exchange for upfront

funding. This allows the company to develop multiple pros-

pects at one time and increase the chances of high-level

production.

A private, accredited investor can invest directly in oil & gas

drilling operations, which means that the investor is directly

liable for a portion of the ongoing costs associated with the

exploration, drilling and production process. Through a

direct working interest, the investor is also entitled to a

portion of the profits when oil starts flowing. The difference

between direct investing, or purchasing a working interest in

a well, and investing in royalties is that with royalties an inves-

tor pays out only an initial investment and is not liable for the

costs of exploration, drilling and production. As such, a

royalty investor also has lower potential for large profits.*

It is important to fully understand exactly what you will be

Direct Investment Facts

Direct Investments are investments in tangible, hard assets, and are not the same as purchasing shares in public companies

Direct Investments offer income over a long period of time, should the venture be successful

Direct Investments offer investors immediate and substantial tax deductions, regardless of whether wells come up dry

Direct Investments offer both increased risk exposure and increased potential for return

Direct Investments require certain income and net worth thresholds for investors, which may vary by state

Direct Investments may have substantial upfront fees that must be paid at the time of purchase

Direct Investments are not sold on any formal secondary market and are therefore not considered liquid investments

Accredited investors are set to lead the

revolution in the market for tangible oil

and gas assets.

Through a direct working interest, the

investor is also entitled to a portion of the

profits when oil starts flowing.

*Disclaimer: Severance taxes and the costs of goods sold are “production costs” that royalty owners pay.





Accredited Investors Only

After oil is discovered and the well is producing, net reve-

nue checks are sent out monthly. The amount of the reve-

nue is based on the amount invested and the amount of oil

produced. The amount may vary as production varies, and

as crude oil prices fluctuate. Payments continue for as

long as the well is producing, or until you sell your share of

the investment.

Direct investments are considered long-term investments,

and are not for everyone. Only accredited investors may

purchase these tangible assets, and since there is no official

secondary market, assets are not considered liquid.

Regulation D, Rule 501 of the Securities Act of 1933

defines an accredited investor as:

a) individual net worth over $1 million (or joint if married),

excluding value of primary residence; OR

b) individual income over $200,000 in each of the previous

two years ($300,000 if married), and a reasonable expecta-

tion of the same income level in the current year

Businesses and organizations have different restric-

tions. An accredited investor can also be:

a) a charitable organization, corporation, or partnership with

over $5 million in assets, OR

b) a business in which all equity owners are accredited

investors, OR

c) a bank, insurance company, registered investment com-

pany, small business investment company, or business

development company, OR

d) a trust with assets over $5 million, not formed to acquire

the securities offered

When you purchase a direct investment, you are purchasing

a portion of an actual tangible asset, and typically you are

purchasing a portion of the well itself. The proceeds from the

production of this well are your profit, paid out in regular

distributions. The percentage you receive is directly tied to

the percentage of the well you purchased.

Basic Accredited Investor Requirements

(May vary from state to state, country to country)





How Much Can You Earn? When Do You Break Even?

The “break-even” point is the point at which you recoup

your entire investment in the form of revenue from the well.

Performing what is called an “acid test” will tell you what

your break-even point will be in the form of barrels the

project must produce in order to recoup your investment.

In order to complete the acid test, you should know the total

amount of your investment, your net revenue interest that

was offered, gross revenue, and the price of oil per barrel.

Let’s say you were offered a 0.9% net revenue interest

in a project for a $500,000 investment. Divide the am-

ount invested ($500,000) by the net revenue interest

(.009).

$500,000 investment / .009

= $55,555,555 total revenue needed

$55,555,555 is the total amount of revenue the entire well

will need to generate in order for you to break even. Know-

ing the revenue needed and an estimated cost per barrel

will tell you how many barrels a well will need to produce to

generate that much income.

If oil averages a cost per barrel of $45:

$55,555,555 revenue needed / $45 cost per barrel

= 1,234,567 barrels

In this example, in order for you to recoup your entire invest-

ment, the well will need to produce 1,234,567 barrels of oil

over the life of the well. To see if this figure is a realistic

expectation, you can look at surrounding wells to see if any

of them have had similar yields.

There is no way to predict how much money can be made

from your direct investment in oil and gas, and anyone who

tells you otherwise is trying to sell you something you don’t

want. Both the potential risks and the potential rewards are

high. The type of direct investment also impacts your return,

such as the difference between investing in a “wildcat”

exploratory well and in an already producing well or a devel-

opmental well, which seeks to strike oil in proven areas and

next to wells that are already producing. The bottom line is

that the higher the risk associated with a certain type of

drilling, the higher the potential reward.

The potential income from a well is directly related to the

cash flow from the well’s production. Wells can produce oil

for 20 years, or even up to 50 years under their own pres-

sure, and have the potential to offer a steady income stream.






Oil and gas direct investments offer

bigger tax breaks than any other type of

investment.

What Are The Tax Advantages?

extracted), how much was actually extracted during the tax

year, and how much it cost to extract the resources. In other

words: the proportion of resources extracted is divided by

the total resources to come up with the percentage of

deduction. Depletion allowances can shelter 15% of the

annual production from income tax. Deductions can be

taken as long as the wells are productive.

Depreciation

Although services and materials used in the drilling process

have no salvage value, the actual tangible equipment used

to complete a well is generally salvageable, and as such, are

depreciated over a 7-year period. These tangible comple-

tion expenses can account for between 25% and 40% of

the total well costs. Everything from casings, tanks, pump-

ing units and wellheads and trees (which control the flow of

oil and gas out of wells) are depreciable expenses.

Intangible Completion Costs (ICCs)

ICCs include non-salvageable goods and services. They

average around 15% of the total cost of the well. ICCs are

deductible in the year the expense was incurred, and

include elements such as labor, completion materials, com-

pletion rig time and fluids.

Intangible Drilling Costs (IDCs)

IDCs are expenditures related to drilling. They represent the

majority of the expenses associated with drilling, and

typically comprise 75% to 85% of the total well. IDCs are

100% deductible against taxable income in the first year.

IDC deductions are available in the year the money was

invested, regardless of when the drilling begins. Another big

advantage of IDCs is that they can offset up to 40% of the

Alternative Minimum Tax (AMT) income, should you fall into

that tax payer category. IDCs include fuel, wages, chemi-

cals and services such as hauling.

Oil and gas direct investments offer bigger tax breaks than

any other type of investment. The federal government, in an

effort to encourage investments in oil and well prospecting,

has offset some of the risk by offering substantial tax bene-

fits. High-net-worth individuals can realize substantial bene-

fits and lower their overall tax burden from the tax incentives

that come from directly investing in oil and gas.

Tax advantages also provide partial insulation in the event of

an investment loss. Because of the substantial tax breaks

offered, investors are essentially using pre-tax dollars to

make their investment. If a well turns up dry and there is no

return on the investment, part of what investors are losing

are pretax dollars which would have otherwise been paid to

the government in the form of income tax — sometimes up

to 30%-40% of the total investment.

Because tax benefits are available even when the well does

not produce any oil, further insulation is gained from claim-

ing these benefits in the year the investment was made.

Depletion Allowance

Depletion allowances are additional tax incentives that

encourage investment in oil and gas. Because oil and gas

are finite resources that will eventually be exhausted, deple-

tion allowances are granted for a portion of the producing

well’s gross income. After the well begins producing,

interest owners can shelter a portion of the gross income

that comes from selling the oil or gas. There are two types

of depletion allowances: cost and statutory. Cost depletion

looks at total recoverable reserves (how much can be

Tangible Drilling Costs (TDCs)

TDCs also represent a substantial expense. This category of

expenses includes the actual drilling equipment, such as

wellheads, pump jacks and casings. Unlike IDCs, TDCs are

capitalized and depreciated over a 5-year period. Deduc-

tions are capitalized over five years.

Lease Operating Expense

Lease operating expenses cover the ongoing costs associ-

ated with operating the well, and are deductible in the year

the expenses are incurred. These deductions do not have

any AMT consequences.

Alternative Minimum Tax (AMT)

The above tax benefits associated with oil exploration and

development used to mean additional taxation through the

AMT. Now, however, individual companies producing 1,000

barrels or less, daily, are not subject to AMT. This means

that the statutory or cost depletion allowances are no longer

considered a preference item and do not trigger the AMT.





extracted), how much was actually extracted during the tax

year, and how much it cost to extract the resources. In other

words: the proportion of resources extracted is divided by

the total resources to come up with the percentage of

deduction. Depletion allowances can shelter 15% of the

annual production from income tax. Deductions can be

taken as long as the wells are productive.

Depreciation

Although services and materials used in the drilling process

have no salvage value, the actual tangible equipment used

to complete a well is generally salvageable, and as such, are

depreciated over a 7-year period. These tangible comple-

tion expenses can account for between 25% and 40% of

the total well costs. Everything from casings, tanks, pump-

ing units and wellheads and trees (which control the flow of

oil and gas out of wells) are depreciable expenses.

Intangible Completion Costs (ICCs)

ICCs include non-salvageable goods and services. They

average around 15% of the total cost of the well. ICCs are

deductible in the year the expense was incurred, and

include elements such as labor, completion materials, com-

pletion rig time and fluids.

Intangible Drilling Costs (IDCs)

IDCs are expenditures related to drilling. They represent the

majority of the expenses associated with drilling, and

typically comprise 75% to 85% of the total well. IDCs are

100% deductible against taxable income in the first year.

IDC deductions are available in the year the money was

invested, regardless of when the drilling begins. Another big

advantage of IDCs is that they can offset up to 40% of the

Alternative Minimum Tax (AMT) income, should you fall into

that tax payer category. IDCs include fuel, wages, chemi-

cals and services such as hauling.

Oil and gas direct investments offer bigger tax breaks than

any other type of investment. The federal government, in an

effort to encourage investments in oil and well prospecting,

has offset some of the risk by offering substantial tax bene-

fits. High-net-worth individuals can realize substantial bene-

fits and lower their overall tax burden from the tax incentives

that come from directly investing in oil and gas.

Tax advantages also provide partial insulation in the event of

an investment loss. Because of the substantial tax breaks

offered, investors are essentially using pre-tax dollars to

make their investment. If a well turns up dry and there is no

return on the investment, part of what investors are losing

are pretax dollars which would have otherwise been paid to

the government in the form of income tax — sometimes up

to 30%-40% of the total investment.

Because tax benefits are available even when the well does

not produce any oil, further insulation is gained from claim-

ing these benefits in the year the investment was made.

Depletion Allowance

Depletion allowances are additional tax incentives that

encourage investment in oil and gas. Because oil and gas

are finite resources that will eventually be exhausted, deple-

tion allowances are granted for a portion of the producing

well’s gross income. After the well begins producing,

interest owners can shelter a portion of the gross income

that comes from selling the oil or gas. There are two types

of depletion allowances: cost and statutory. Cost depletion

looks at total recoverable reserves (how much can be

Follow the supermajors. If the superma-

jors are drilling in your prospective area,

then the potential for reward is high.

Where to Invest: Finding the Sweet Spots

ator is achieving real results. Follow the supermajor compa-

nies and the large independent operators: If they are drilling

in an area, then there is potential.

Crude Energy focuses on the prime oil-producing regions of

Texas, Oklahoma, Louisiana and North Dakota—all venues

where drilling is coming up with gushers—and drills with the

biggest players on the scene, including Royal Dutch Shell,

Chevron, Devon and Chesapeake.

Location, Geology and Proven Reserves

Is the prospective location in a proven area?

How are other wells in the area faring?

Who else is drilling in the area and what does this tell you?

Choosing where to invest in oil wells requires a fair amount

of due diligence. While the shale revolution ensures us that

there are plenty of venues for private investors to choose

from, it is important to evaluate an oil prospect by looking

at how other wells in the immediate vicinity have fared.

Prospective investors should seek detailed data on nearby

wells explaining the depth to which those wells were drilled

and how much they have subsequently produced.

Prospective investors should also seek seismic data that

portrays the geological characteristics of a prospective

drilling area to determine the likelihood of success. The key

indicators here will be “proved production” and “proved

recoverable reserves”.

You can also consult with the relevant state agency respon-

sible for maintaining records on production, drilling and

development activities to make sure you are about to invest

in something that promises real returns, and that your oper-

Tangible Drilling Costs (TDCs)

TDCs also represent a substantial expense. This category of

expenses includes the actual drilling equipment, such as

wellheads, pump jacks and casings. Unlike IDCs, TDCs are

capitalized and depreciated over a 5-year period. Deduc-

tions are capitalized over five years.

Lease Operating Expense

Lease operating expenses cover the ongoing costs associ-

ated with operating the well, and are deductible in the year

the expenses are incurred. These deductions do not have

any AMT consequences.

Alternative Minimum Tax (AMT)

The above tax benefits associated with oil exploration and

development used to mean additional taxation through the

AMT. Now, however, individual companies producing 1,000

barrels or less, daily, are not subject to AMT. This means

that the statutory or cost depletion allowances are no longer

considered a preference item and do not trigger the AMT.

Assessing Your First Direct Investment





Follow the Technology to the Next Boom

The recent shift here to horizontal well drilling has rendered

this play the unexpected ground zero of the American oil

boom. Operators in the Permian Basin have been slower

than they have elsewhere to switch from vertical to horizon-

tal well drilling, but today, horizontal is now outpacing the

vertical and investors are lining up to get in the game.

While Eagle Ford and Bakken were viewed as the “bigger

plays” at the start of the US shale boom, due to the fact that

new technology debuted here earlier and more energetical-

ly, the Permian is back and bigger than ever—and the tradi-

tional US oil giant has now been revived. It’s no longer just a

mature play—it’s a major growth area. Of particular interest

to Crude Energy are the Permian Basin’s Wolfcamp, Fussel-

man, Cline, Mississippian and Strawn zones.

This doesn’t mean that vertical drilling is a thing of the past

by any means. While horizontal drilling is changing the future

of the Permian Basin, vertical completions using new tech-

nology such as fracking and co-mingling multiple zones are

turning out top results, and drillers are seeing strong eco-

nomics in these wells. Crude Energy is active throughout

North America, drilling both vertical and horizontal wellbores

and capitalizing on new trends and technology in the industry.

This is what following the technology tells us: Eagle Ford

and Bakken became economical only after being drilled

horizontally, so with the final shift to dominate horizontal

drilling in the Permian, the game has only just begun, while

at the same time vertical drilling and the conventional game

is still a winner.

Multi-well pad drilling: Getting More out of Eagle Ford

While the Permian is back on everyone’s radar as a huge

growth prospect, and the Bakken remains a key venue with

Determining where the next big oil boom will be depends

largely on following the technology, from the latest in drilling

advances and the extraction miracle of hydraulic fracturing

to 3D and 4D seismic imaging, which leads us to the sweet

spots faster and with less risk of drilling a dry well.

Crude Energy was founded on the fundamental principles

of applying state-of-the-art petroleum and natural gas

exploration and extraction technology to the development

of onshore oil and natural gas projects. Crude Energy is a

technology-driven company, with cutting edge expertise in

all of these latest advancements, capitalizing on new trends

in the industry. Crude Energy drills both vertical and

horizontal wellbores, and partners in 2D, 3D and 4D seismic

shoots that generate high-grade drilling opportunities.

Full circle to the Permian basin

One of the most exciting stories of the American oil boom

over the past couple of years has been the Permian Basin in

western Texas & southeastern New Mexico, which encom-

passes an area about 260 miles wide and 300 miles long.

This basin was once thought to have reached peak produc-

tion, but its fate that has been changed by new technology.

extraction more efficient.

Pad drilling took off in the Bakken and Eagle Ford in 2010

and currently accounts for around 75% of all wells drilled in

these major venues.

The revolutionary process is also highly visible in the

Barnett shale, where it was first widely implemented in

2006, as well as in the Fayetteville shale formation in

Arkansas.

Fracking, the extraction revolution

Hydraulic fracturing has played a major role in the ongoing

American oil boom, and today some 90% of all oil and gas

wells in the US have used this process to boost production

at one point or another.

Fracking takes place after the well is completed and is

used where geologic formations contain large quantities of

oil or gas but has poor flow rates due to low permeability,

damage, or clogging of the well bore during drilling. This is

particularly significant for shale formations and tight sands.

The fracking process involves the injection of water and

chemicals into the well, while the pressure from the flow of

this fracking fluid creates cracks or fractures to enable a

revolutionary increase in the oil and gas flow rate.

companies bidding up acreage, the technological advances

in the prolific Eagle Ford shale in Texas are an investors’

paradise.

In 2013 alone, the impact of the Eagle Ford shale on south

Texas’ economy alone was more than $87 billion. This inc-

ludes direct economic impact of oil and gas exploration,

and indirect economic activity created from suppliers

building warehouses, workers spending their paychecks,

and much more. The economic impact of Eagle Ford on

this area was $61 billion in 2012, and by 2023 the projec-

tion is $137 billion.

The technological advancements here have been highly

lucrative for investors. Companies in the Eagle Ford are

drilling multiple wells on each pad location leading to more

production with lower costs, and there is a flurry of activity

underway for improving the recovery of oil and gas.

Along with hydraulic fracturing and horizontal drilling, pad

drilling has been a key innovation contributing to the

ongoing American oil boom, and this is highly visible in

Eagle Ford. Where before operators would have to drill a

single well and then disassemble the rig and move it all to

a new location, now they can drill up to 20 wellbores from

a single location, significantly cutting costs and making






The recent shift here to horizontal well drilling has rendered

this play the unexpected ground zero of the American oil

boom. Operators in the Permian Basin have been slower

than they have elsewhere to switch from vertical to horizon-

tal well drilling, but today, horizontal is now outpacing the

vertical and investors are lining up to get in the game.

While Eagle Ford and Bakken were viewed as the “bigger

plays” at the start of the US shale boom, due to the fact that

new technology debuted here earlier and more energetical-

ly, the Permian is back and bigger than ever—and the tradi-

tional US oil giant has now been revived. It’s no longer just a

mature play—it’s a major growth area. Of particular interest

to Crude Energy are the Permian Basin’s Wolfcamp, Fussel-

man, Cline, Mississippian and Strawn zones.

This doesn’t mean that vertical drilling is a thing of the past

by any means. While horizontal drilling is changing the future

of the Permian Basin, vertical completions using new tech-

nology such as fracking and co-mingling multiple zones are

turning out top results, and drillers are seeing strong eco-

nomics in these wells. Crude Energy is active throughout

North America, drilling both vertical and horizontal wellbores

and capitalizing on new trends and technology in the industry.

This is what following the technology tells us: Eagle Ford

and Bakken became economical only after being drilled

horizontally, so with the final shift to dominate horizontal

drilling in the Permian, the game has only just begun, while

at the same time vertical drilling and the conventional game

is still a winner.

Multi-well pad drilling: Getting More out of Eagle Ford

While the Permian is back on everyone’s radar as a huge

growth prospect, and the Bakken remains a key venue with

Determining where the next big oil boom will be depends

largely on following the technology, from the latest in drilling

advances and the extraction miracle of hydraulic fracturing

to 3D and 4D seismic imaging, which leads us to the sweet

spots faster and with less risk of drilling a dry well.

Crude Energy was founded on the fundamental principles

of applying state-of-the-art petroleum and natural gas

exploration and extraction technology to the development

of onshore oil and natural gas projects. Crude Energy is a

technology-driven company, with cutting edge expertise in

all of these latest advancements, capitalizing on new trends

in the industry. Crude Energy drills both vertical and

horizontal wellbores, and partners in 2D, 3D and 4D seismic

shoots that generate high-grade drilling opportunities.

Full circle to the Permian basin

One of the most exciting stories of the American oil boom

over the past couple of years has been the Permian Basin in

western Texas & southeastern New Mexico, which encom-

passes an area about 260 miles wide and 300 miles long.

This basin was once thought to have reached peak produc-

tion, but its fate that has been changed by new technology.

extraction more efficient.

Pad drilling took off in the Bakken and Eagle Ford in 2010

and currently accounts for around 75% of all wells drilled in

these major venues.

The revolutionary process is also highly visible in the

Barnett shale, where it was first widely implemented in

2006, as well as in the Fayetteville shale formation in

Arkansas.

Fracking, the extraction revolution

Hydraulic fracturing has played a major role in the ongoing

American oil boom, and today some 90% of all oil and gas

wells in the US have used this process to boost production

at one point or another.

Fracking takes place after the well is completed and is

used where geologic formations contain large quantities of

oil or gas but has poor flow rates due to low permeability,

damage, or clogging of the well bore during drilling. This is

particularly significant for shale formations and tight sands.

The fracking process involves the injection of water and

chemicals into the well, while the pressure from the flow of

this fracking fluid creates cracks or fractures to enable a

revolutionary increase in the oil and gas flow rate.

companies bidding up acreage, the technological advances

in the prolific Eagle Ford shale in Texas are an investors’

paradise.

In 2013 alone, the impact of the Eagle Ford shale on south

Texas’ economy alone was more than $87 billion. This inc-

ludes direct economic impact of oil and gas exploration,

and indirect economic activity created from suppliers

building warehouses, workers spending their paychecks,

and much more. The economic impact of Eagle Ford on

this area was $61 billion in 2012, and by 2023 the projec-

tion is $137 billion.

The technological advancements here have been highly

lucrative for investors. Companies in the Eagle Ford are

drilling multiple wells on each pad location leading to more

production with lower costs, and there is a flurry of activity

underway for improving the recovery of oil and gas.

Along with hydraulic fracturing and horizontal drilling, pad

drilling has been a key innovation contributing to the

ongoing American oil boom, and this is highly visible in

Eagle Ford. Where before operators would have to drill a

single well and then disassemble the rig and move it all to

a new location, now they can drill up to 20 wellbores from

a single location, significantly cutting costs and making





The bottom line is that if someone tells

you they’ve struck oil in your well but

don’t have the money to develop it to

production, it is very likely a scam.

Avoiding Investment Pitfalls: Advice for the Sophisticated Investor

possibility of fraud, an operator’s track record, the type of

drilling project and the potential tax benefits.

Private direct investing in the oil and gas sector is an under-

taking that requires very careful navigation of pitfalls,

scams and unscrupulous players. If something sounds too

good to be true, then likely it is. This is a potentially

high-risk, high-reward investment arena and this should be

clear from the start.

Sophisticated investors not only look at the profit potential

of a deal, but examine a number of variables, including the

debt in a worst-case scenario. The risk here is phenome-

nally higher than in a working interest context.

Vulnerability to Regulatory Scrutiny: Although a joint

venture interest is technically not a “security” under the

laws of many states—including Texas—many state security

regulators nonetheless treat JV interests as securities and

expect the appropriate filings to be made. This could lead

to a securities investigation for unsuspecting investors,

while the bad-actor provisions of the Dodd-Frank Act allow

for the total destruction of the private offering exemption if

the issuer receives a final state regulatory order to cease

and desist. As such, a JV offering could leave an investor

vulnerable and defenseless.

Also be wary of:

Salesman who offer you “no risk” deals and claim a

100% success rate;

High-pressure sales tactics; legitimate oil and gas com-

panies understand the risk, welcome due diligence and

are happy to provide details and answer any questions

Blue Skies … All the Way

Finally, make sure the company you’re dealing with is

‘Blue-Skying’ the offer. Blue Sky laws are state laws and

regulations designed to protect investors against securities

fraud. Among other requirements, Blue Sky laws require

sellers to file a specific notice for each of their offerings, to

claim access to the private offering exemption, and to avoid

a formal registration process.

Why Blue Sky is paramount to a successful investment:

It is the bare bones minimum requirement for any private

offering

Compliance is neither complex nor expensive

Compliance demonstrates that the issuer is a responsi-

ble corporate citizen

Beware of scams

There are scams and fraudulent deals around every corner.

Among the more notorious scams are lies about striking oil

in order to lure investors in to provide additional funds to

“cover the costs of development”. If you’ve gotten to this

point then you’ve already invested with a disreputable com-

pany and may not be aware of their intentions. This particu-

lar scam is well thought out and often comes along with a

couple of checks to convince the investor of the deal’s

legitimacy. What they are doing is taking your initial invest-

ment money and sending small chunks of it back to you in

order to convince you to invest more. It’s a fake return on

investment. Always seek documented evidence of drilling

progress at every step. The bottom line is that if someone

tells you they’ve struck oil in your well but don’t have the

money to develop it to production, it is very likely a scam.

It is also advisable to steer clear of joint ventures (JVs) in

direct investing due to the disproportionately high risk. Why?

Liability and Disclosure Issues: Because JVs are general

partnerships, each individual JV interest owner will have

joint and multiple liability exposure. Almost across the

board, these JV agreements are misleading to investors,

intimating that each JV interest holder is only responsible

for his or her “pro-rata” portion of any liability, when in fact

this so-called provision is ineffective when it comes to third

parties—the direct investor. A direct investor in this situation

will find that they can be pursued for the entire amount of

which generates high-grade drilling opportunities.

Learn more about why seismic is invaluable to the drilling

process, and how this cutting-edge technology works from

Crude Energy.

Hot spots, emerging plays and ‘wildcats’

3spots for a greater chance of payoff, or target emerging

plays or even “wildcat” exploratory wells that may come up

dry or may turn out to be the next big gusher.

Returns are never guaranteed, and there’s always a chance

that a well will come up dry. Even if a producing well is the

target, it is important to understand that the initial years of

production will be the most lucrative, while later years will

see a declining yield. Along with this declining yield comes

diminished returns and high costs to keep things pumping.

While investing in proven areas comes will less risk, more

sophisticated investors often seek to raise the stakes by

investing in a “wildcat” exploratory well in an unproven area.

The risk here is substantial, but the reward is potentially

phenomenal.

The best way to mitigate some of the risk while maximizing

potential reward is to diversify your direct investing portfolio

with a mixture of producing wells, exploratory wells in proven

areas and “wildcat” wells.

Seismic imagery, removing the guesswork

Advances in seismic imaging are helping oil and gas com-

panies achieve exploration results faster and with less

money wasted on drilling dry wells. The advent of advanced

3D and 4D seismic imaging have greatly changed the explo-

ration game by allowing geologists to understand, in detail,

the sub-surface structures of a formation and more accu-

rately predict the presence of hydrocarbons. But it doesn’t

stop there: seismic imaging also plays an important role in

oil and gas development and production management.

While 3D imaging gave us a much more accurate blueprint

of what lies under the surface of tricky formations, 4D

seismic surveying decodes a variable that allows explorers

to see how a reservoir is changing over time.

The seismic imaging takes place after an area has been

established as prospective for oil and gas. The process in-

volves directing intense acoustic energy into the earth and

recording the energy reflected back and collected by geo-

phone listening devices. While 2D seismic shows us results in

two-dimensional vertical cross-sections of the earth’s

subsurface, 3D seismic give us results in a three-dimensional

cube, while 4D measures changes in reservoir fluids over

time and is most valuable for development activities.

Crude Energy specializes in 2D, 3D and 4D seismic imaging,




possibility of fraud, an operator’s track record, the type of

drilling project and the potential tax benefits.

Private direct investing in the oil and gas sector is an under-

taking that requires very careful navigation of pitfalls,

scams and unscrupulous players. If something sounds too

good to be true, then likely it is. This is a potentially

high-risk, high-reward investment arena and this should be

clear from the start.

Sophisticated investors not only look at the profit potential

of a deal, but examine a number of variables, including the

debt in a worst-case scenario. The risk here is phenome-

nally higher than in a working interest context.

Vulnerability to Regulatory Scrutiny: Although a joint

venture interest is technically not a “security” under the

laws of many states—including Texas—many state security

regulators nonetheless treat JV interests as securities and

expect the appropriate filings to be made. This could lead

to a securities investigation for unsuspecting investors,

while the bad-actor provisions of the Dodd-Frank Act allow

for the total destruction of the private offering exemption if

the issuer receives a final state regulatory order to cease

and desist. As such, a JV offering could leave an investor

vulnerable and defenseless.

Also be wary of:

Salesman who offer you “no risk” deals and claim a

100% success rate;

High-pressure sales tactics; legitimate oil and gas com-

panies understand the risk, welcome due diligence and

are happy to provide details and answer any questions

Blue Skies … All the Way

Finally, make sure the company you’re dealing with is

‘Blue-Skying’ the offer. Blue Sky laws are state laws and

regulations designed to protect investors against securities

fraud. Among other requirements, Blue Sky laws require

sellers to file a specific notice for each of their offerings, to

claim access to the private offering exemption, and to avoid

a formal registration process.

Why Blue Sky is paramount to a successful investment:

It is the bare bones minimum requirement for any private

offering

Compliance is neither complex nor expensive

Compliance demonstrates that the issuer is a responsi-

ble corporate citizen

Beware of scams

There are scams and fraudulent deals around every corner.

Among the more notorious scams are lies about striking oil

in order to lure investors in to provide additional funds to

“cover the costs of development”. If you’ve gotten to this

point then you’ve already invested with a disreputable com-

pany and may not be aware of their intentions. This particu-

lar scam is well thought out and often comes along with a

couple of checks to convince the investor of the deal’s

legitimacy. What they are doing is taking your initial invest-

ment money and sending small chunks of it back to you in

order to convince you to invest more. It’s a fake return on

investment. Always seek documented evidence of drilling

progress at every step. The bottom line is that if someone

tells you they’ve struck oil in your well but don’t have the

money to develop it to production, it is very likely a scam.

It is also advisable to steer clear of joint ventures (JVs) in

direct investing due to the disproportionately high risk. Why?

Liability and Disclosure Issues: Because JVs are general

partnerships, each individual JV interest owner will have

joint and multiple liability exposure. Almost across the

board, these JV agreements are misleading to investors,

intimating that each JV interest holder is only responsible

for his or her “pro-rata” portion of any liability, when in fact

this so-called provision is ineffective when it comes to third

parties—the direct investor. A direct investor in this situation

will find that they can be pursued for the entire amount of






Confirm the operator’s track record

In the oil and gas business, experience means everything.

The ideal investment partner will have over a decade of

experience and a proven track record of successfully—and

routinely—finding oil and gas and churning profits.

Any reputable company should be transparent, and should

willingly share information with potential investors to make

sure it is the right match between investor and the company.

Companies should also be willing to provide a list of existing

investors so you can speak with them to obtain a reference.

In addition to upfront information, reputable companies

should be accessible throughout the project. Investors

should determine how information is disseminated during

the project, and how often those project updates occur.

Verify the paperwork

Another common scam is to actually hit oil and then have

the operators claim it for themselves by a trick of paperwork

that left exact well ownership ambiguous. You get stuck

with a dry well, while the operator earns big revenues off of

a successful well drilled with your money.

It is paramount that as a direct investor in oil and gas, you

have access to and the ability to verify ownership records,

direct assignments and all other records pertaining to the

wells on your leases, which is best done with the local

authorities in the county in question. You should receive a

“recorded assignment” of your fractional interest and direct

ownership in an oil and gas leasehold. County authorities

can then provide you with recorded documents that will

confirm the legitimacy of your investment.

Is Direct Investing For You?

A hedge against rising prices

A hedge against stock and interest rate movements

Low and finite supply of oil & gas, coupled with high

demand on an upward trend

Diversification of overall holdings

Potentially massive payback on drilling

Generous tax benefits

Volatility

Risks tied to drilling operator

Potential for scams and fraudulent deals

Potential for wells to come up dry

Depleting assets

Relative illiquidity

External economics and political incidents could

affect pricing and availability

Pros Cons





Crude Energy: Our Mission

What Our Investors Have to Say

Crude Energy invests millions of dollars every year in research and development of new processes and procedures

and continues to fully utilize the latest technologies in order to reduce dry risk and increase the likelihood of drilling

commercially productive wells.

Our exploration activities are focused on adding profit -generating production to existing core areas and developing

new core areas.

We work for sophisticated investors by:

Acquiring oil and gas properties that give us a majority working interest and operational control;

Maximizing the value of our properties through increasing production and reserves, while controlling costs;

Remaining focused on specific regions where we have a competitive advantage due to expanding infrastructure;

Acquiring properties where we believe additional value can be created through secondary and tertiary recovery operations

and other techniques.

“Congratulations on leading your investors to such a good well. If it weren’t for you I would have lost faith in the operation

and that the investors were being put first and foremost. How many persons have an oil company without investors? Espe-

cially pleased investors, ones who have been treated fairly. Thanks for your diligent effort.”

— Graham P. North Carolina

“I have had nothing but positive experiences with Crude Energy. They have been responsive to my questions and prompt

with payments and documentation matters. If you are interested in this type of investment, this is the group to invest with.”

— Kurt W. Carlisle, PA

“We’ve been working with Crude for a year now and it has given us excellent opportunities to make direct investments in oil

and gas working and royalty interests. Communication has been great with prompt responses whenever we’ve had ques-

tions or needed updates. We are impressed with the level of professionalism shown by everyone at Crude.”

— Jim E. Rockwall, TX

“I have been very satisfied with my investment in BR Jerico. I am close to retirement, and, especially in the current market, it

is a great relief to own an investment that reliably delivers a strong return.”

— Paula M. Houston, TX

“I am happy to have a chance to look into the investments that your company offers. You have shown knowledge in great

length. Keep up the good work.”

— Victoria P. Beaverton, OR




Crude Energy Headquarters1910 Pacific Ave. Suite 7000Dallas, Texas 75201 U.S.A

CONTACT USFor more information on direct investing

opportunities & join the American oil boom!

Phone: (214) 935-1583Email: [email protected]
