Some investors seem to imagine that by searching on the internet
they will find viable Oil & Gas Investment opportunities.

They are wrong.

"In this day and age (2007), the world is awash with liquidity.
Good oil deals don't have to go looking for money."

- HCJ, a very experienced oilman

Consider lobsters.

If you are not all that familiar with oil deals, perhaps you know something about lobsters. In any case, for the sake of the following discussion, we will assume so.

We're talking about lobsters like the one that crawled under the kitchen refrigerator in the movie Annie Hall, pictured below.

American lobster, Homarus americanus.

Look up "lobster" in Wikipedia, and the first words of the Gastronomy section are: "Lobster is best eaten fresh ..."
Lobster - Wikipedia, the free encyclopedia

As a kid, I had no interest in lobster. None. Even though my family spent some time in New England - at places like Cape Cod, Bar Harbor, Nantucket, and Monhegan Island (all of which are places where they know what a lobster is supposed to be like), I only came to appreciate lobster much later in life.

And what I learned was this: Lobster should only be eaten fresh.
What do I mean by "fresh", you ask? I mean right out of the lobster pound in a place like Port Clyde, Maine, or steamed right at the dock, as the lobster boats pull up and off loads their catch.

I really enjoy lobster. But because I live in Oklahoma City, I save my lobster-eating for when I am either in
Les Maritimes (the Canadian Provinces of New Brunswick, Nova Scotia, and Prince Edward Island) or
It's where lobsters come from
... and where
they know what a lobster is supposed to be like!

To get a clear understanding of "fresh", go to Rockland, Maine
It's the headquarters of lobster-dom in the U.S..

From Rockland Maine, drive about 27 hours south and west (approximately 1700 miles +/-) until you get to Lincoln, Nebraska. * [see note at bottom]

There in Lincoln, you may be able to find a restaurant (similar to the uncountable many across this country), where it says, right on the menu, "fresh Maine lobster". Over in a dark corner of the reception area, there may even be a dingy-looking tank, with something vaguely resembling a lobster, lying immobile in the bottom of it.

No matter how that lobster found its way to Lincoln - whether by mule train or by Boeing 747 - you know perfectly well (after your 27 hour drive!) that this here lobster ain't all that "fresh". Still alive, maybe (although just barely) but not "fresh". And you know, from Wikipedia that "Lobster is best eaten fresh ...".

For the low-down on 'fresh seafood' see the following:
ABC News: Diners Beware: Mondays May Be Fishy

So how DID that lobster finally arrive in Lincoln?
Well even if we don't know much about seafood distribution, we can expect at the very least, it has passed through a number of hands, starting:
- from the lobsterman on his lobster boat,
- to the lobster pound,
- to the wholesale lobster purchaser in Rockland, Maine
- to the lobster transportation guy at the airport in Rockland, Maine
- to the flight to Lincoln, Nebraska, and then
- to the lobster wholesale distributor in Lincoln, Nebraska and finally
- to the restaurant.
In many cases it may have passed through even more hands than these, and in some cases, it may have passed through fewer. No matter.
The more hands it passes thru the more 2 things happen:
1) the price increases, and
2) the freshness (quality) decreases.

Lincoln may be about as far downstream as you can get in the "fresh" lobster distribution network. Somewhere like Bowlegs, Oklahoma would even be further downstream, but Bowlegs isn't the kind of place that probably has any restaurants that are likely to have "fresh Maine lobster" on the menu.

So, okay, then ... When you are ready to go out for lobster (which "is best eaten fresh ...") where are you going to be able to find good (fresh) lobster?

Not in Bowlegs.
Not in Lincoln.
Not (far too frequently) in New York City or even Boston.
Rockland Maine is a very safe bet, although my personal preference would be nearer yet, to the independent lobsterman, like any of the small lobster pounds to be found along the harbors and coves and points dotted along the magnificent coastlines of Maine or the Maritime Provinces.

Here, then is Rule 1:

To get fresh lobster you have to go to where there IS fresh lobster.

Of course. But there is also more to it than that. There's also human nature.
We're going to be talking about YOU!

Picture the kitchen of a typical lobsterman's home. What do they eat?
Probably many of the same things that you have in your kitchen.
But do they eat lobster? You bet they do!
And is it good fresh lobster? You bet it is!

In fact, when Mr. Lobsterman pulls into port, and starts off-loading his catch, what do you suppose happens when he spies among his catch, an exceptionally fine female specimen of Homarus americanus?

Well, think about it.
If you were the lobsterman, what would YOU do?

My guess is that you would pluck that exceptionally fine lobster out of the batch you are selling, and take it straight home and steam for your family to enjoy for dinner that very morning. (Yes, it's morning when the lobster boats get back into port.)

If you think about this a bit, YOU (the lobsterman) are exactly the reason why the really good lobsters are pulled out of the batch right there on the lobster boat or at the dock in port and never get into the "fresh" lobster distribution network. (And even if some do somehow make it past the dock, the wholesale buyer, who also knows his lobsters, would grab them for himself and take it home to HIS family .. and so on.)

So here is Rule 2:

Even if some exceptionally fine lobsters do somehow get into the "fresh" lobster distribution network, it is highly likely ("P-99" in probability parlance) that the best ones will get pulled out of the distribution steam, long before they get all the way downstream to some restaurant in Lincoln, Nebraska.

So whatever lobster does eventually make it to Lincoln is ... over-priced and not very fresh and not very good.

Now ... about oil deals.

George is a talented geologist who lives in Oklahoma City and has been exploring for oil and gas for 30 years.
Geologist George has generated an exciting new prospect that has the potential to open up a new play-concept which, if successful, could lead to the drilling of dozens or even scores of new oil and gas wells. He shows it to some other geologists and engineers that office down the hall from him. They know the area. The know the rocks. They see the potential of the prospect that George has generated. If they think it has any merit at all, they will decide to take a piece of the deal. Later over beers that evening they mention it to some land guys they work with. And next day the land guys take a piece of the deal. And so it goes. The really exceptional oil deal gets fully subscribed before George ever gets around to thinking about looking for capital or syndicating the deal. It gets sold within the "oil patch" right here in Oklahoma City.

Now consider the different case of Frank, another geologist who lives in Oklahoma. Sometimes he's referred to as Flakey Frank, because he has generated deals that no one among his peers would look at twice.

If he can't sell the deal in Oklahoma City, he heads to Dallas.
He shows it to some geologists and engineers and landmen in Dallas.
Maybe some take a small piece, but he still doesn't have it all sold.
So he moves on to Houston.
Spends several days pounding the pavement trying to get someone to look at his deal.
Still not completely sold. He catches the red-eye to New York.
He flogs his deal to money guys in the Financial District who (as the expression goes) "couldn't tell a sand grain from a Kelly bushing".
Still not sold. He gets on an economy flight to London and tries to sell the rest of it there.
And if he can't sell it in London, he heads on to Hong Kong and tries to flog it in Kowloon.

(So, basically, it might be a fair observation to say that no one in Hong Kong has ever seen a real domestic U. S. oil deal. The only thing they HAVE seen is the kind of crappy over-promoted stuff that has been passed over by everyone else to whom it has already been marketed!)

As Lincoln Nebraska is to lobsters: Hong Kong may be about as far downstream as you can get in the distribution of U.S. oil deals. Or maybe we should say Singapore? See latest at the bottom of this page!

"But," you say, "I live in Florida [... or Silicon Valley ... or Boston ... or Newport Beach, California ... or Redmond, Washington...]. What does that have to do with me?"

Forget about maps. In the context of the distribution of oil deals you're a lot closer to Hong Kong than you are to Oklahoma City.

So yes, oil deals are like lobsters.
As they get further away from the source, they get less and less fresh and more and more costly ... and chances are they will start to smell, just a bit.

Rule 3:

The good oil & gas deals never leave town.

Perhpas you are content to spend your evenings surfing around the internet for the mother of all oil deals. Of course, that is your choice.

But you know from the discussion above, the really good deals are not going to come looking for you ... in Hong Kong (or wherever).

If (as the saying goes) you want to "take it to the next level", and you are an accredited investor, serious about the long term investment, and disciplined enough to set a 3 year budget for participating in oil and gas deals, why not have an experienced oil and gas professional on your side of the table, to find the kinds of opportunities that are best for you.

This is what we do for our clients.
Maybe we can help you. Maybe not.
But we won't know until we talk it over a bit.

The first step:
Let's talk about what you want to do.

(If you have not already done so, I urge you to get a copy of MONEY IN THE GROUND. Why? Not because I wrote it, but because it will provide a common-denominator of understanding from which we can move forward.)

John Orban
Oklahoma City, OK
June 2007

Tel: 405-752-9440

* In the interest of Full Disclosure, about Lincoln, Nebraska:

Actually, I have no idea whether or not there actually IS a restaurant in Lincoln, Nebraska that has 'fresh Maine lobster' on the menu with a dingy-looking tank in the reception area. (This specific part of the discussion stands as a proxy for all the many restaurants across this country that are not in Maine, but DO have 'fresh Maine lobster' on the menu. You've probably been in one.)

And just to be clear.
Why is Lincoln Nebraska the example?
1 Because I'm in Oklahoma (and Nebraska is a big-time football rival), and
2 Nebraska is where the football team has an "N" on their helmets, and around here, everyone knows that the players are taught that the "N" stands for 'knowledge'!


Copying and distribution of this article is permitted in any medium,
provided that the entire page is copied and distributed verbatim, without editing.

Copyright © 2007 by J. Orban & Co. LLC.

Here is a an on-going real-life example case reported
Tuesday, February 3, 2009

"Powder River marketed leasehold working interests in Oklahoma, Texas and Louisiana, Day said. In 2006, the company collected $17.7 million for working interests in several oil and gas leaseholds that the company had bought for $144,637, according to the company’s 2007 tax return."

See the full article here:

Powder River pushed into bankruptcy after president tries to regain control