At Faro Oil & Gas, we believe the key to creating exceptional value in the oilfield is to honor our commitment of exemplary stewardship of resources to minimize risk, minimize environmental impact and maximize returns.
There large number of risk factors involved in drilling, completing and operating oil and gas wells. These include, but are not limited to commodity prices, geology and drilling, and capital and operational risk. Our strategy of recycling wellbores to produce behind pipe reserves from known oil and gas bearing zones in existing wellbores that have in the past produced hydrocarbons was specifically designed to mitigate these risks as much as possible. For example, our estimated breakeven is $24.00/BO. In the past 35 years WTI has traded at or above $30/BO 90% of the time. Chances we see oil prices a barrel in the coming years is quite remote. Our strategy is very capital efficient; 80% 0r more of our capital goes into the ground to produce hydrocarbons. We are not forced to use 30%-40% of our capital up-front to acquire expensive mineral leases that we then have to drill (even if oil and natural gas prices are weak) so we don’t lose our investment in mineral leases, the wellbores we acquire typically include the mineral leases. In addition, it would cost around $1 million to drill a new conventional well in our target areas, but we are able to recomplete an existing well for approximately $250,000/well, a fraction of the cost of drilling a new well. Since all the surface equipment and infrastructure to transport oil, water and natural gas is in place, we get oil and natural gas to market faster than drilling a new well accelerating cash flow allowing us to develop additional wells out of free cash flows enhancing our investor’s return on invested capital. From time to time we will need to repair or refurbish some of the surface equipment, but again it is typically far less expensive than purchasing new equipment. Since we are reentering an existing wellbore, we have all the previous operators well diagrams, logs, daily production history of the well, etc. This data enables us to great degree know what’s down the hole giving us an idea of what to expect and a allowing us to develop a plan of how to deal with an old wellbore. There will still be some surprises but going in we have far more information that when drilling a new well. Lastly, there is an old saying in the oil and gas business “the best place to find oil, is where there is oil.” We are working with wellbores that typically produced a lot of hydrocarbons in the past. We know there is oil and natural gas in the hole, our job is to produce the remaining reserves as efficiently as possible. Our entire strategy is designed to mitigate as much risk as possible, produce hydrocarbons as cheaply as possible and maximize our investor’s return on invested capital.
Another key component is taking advantage of technical arbitrage opportunities, applying leading-edge technology to the evaluation, acquisition, and management of, existing wellbores with undeveloped and underdeveloped productions zones, mitigating risk and minimizing environmental impact.
