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Oil & Gas Projects

Questa Energy is continually developing oil and gas projects in the Mid-Continent region. Questa retains a substantial equity position, and the remaining interests are offered to knowledgeable investors and industry participants. We have developed long lasting relationships with numerous investors, but opportunities do become available for new investors from time to time. 

Acquisition Projects

Acquisition projects provide long-life cashflow with quick payouts (3 Yrs. or less). Typically, they involve a situation where we can identify upside potential in producing oil and gas assets through operational enhancements, cost reductions, improved product marketing, recompletions, and anything else that can add value to the assets.  Prior to closing we evaluate each and every asset to determine where upside potential exist so we can formulate our strategy. Our evaluation process looks at production, expenses, contracts, logs, etc. We target assets with minimal decline (10% or less) and long-life reserves (15-20 years +).   

 

Drilling Projects

Drilling projects are selectively pursued in "niche" areas where we can utilize our local knowledge and expertise.  We have been principally involved in hundreds of drilling projects located in the Mid-Continent region of Texas, Oklahoma, and Kansas. Today, our concentration is on the West Field located in the Texas Panhandle. Here, we are looking to develop high btu natural gas from the Brown Dolomite formation at approximately 3,600 ft. Questa has drilled over 50 wells in the West Field with a sucess rate of around 85%. We possess an extensive data base of geologic work in the West Field that allows us to better evaluate and execute our projects. Once a well is in production, significant knowledge of wellhead compression is required to maximize production and minimize downtown. Through our long history in the field, we have gained the necessary experience and expertise to locate high quality drilling locations and to maximize production upon completion and through the life of the well.

 

In addition, we are interested in participating with known operators in projects in Western Kansas where the Lansing-Kansas City, Morrow, and Mississippi formations are the target. We require high quality 3-D seismic data to analyze prospective acreage for a potential drilling location and to ensure a quality reservoir capable of producing substantial quantities of oil and gas. We have participated in and/or generated numerous projects in the area and use this experience to guide us on future projects. Projects must have reasonable leasing and drilling cost with significant reserve potential

 

Risk

Direct participation in oil and gas is for the risk tolerant investor. Oil and gas investment provides an inflation hedge, as well as diversity to an equity investment portfolio.

The following is a synopsis of the tax benefits generated by direct participation in oil and gas projects:

Intangible Drilling Costs (IDC)

When an oil or gas well is drilled, several expenses may be deducted immediately. These expenses are deductible because they offer no salvage value whether or not the well is subsequently declared to be dry. Examples of these types of expenses would be labor, drilling rig time, drilling fluids etc. IDCs usually represent 60% to 80% of the well cost. Investors usually put up the drilling portion of their investment before drilling operations commence, and the investor's portion of the intangible drilling costs is generally taken as a deduction in the tax year in which the intangible costs occurred. The accounting method adopted however could affect the deduction period.

Intangible Completion Costs

As with IDCs these costs are generally related to non­salvageable completion costs, such as labor, completion materials, completion rig time, fluids etc. Intangible completion costs are also generally deductible in the year they occur, and usually amount to about 15% of the total.

Depreciation

As opposed to services and materials that offer no salvage value, equipment used in the completion and production of a well is generally salvageable. Items such as these are usually depreciated over a seven year period, utilizing the Modified Accelerated Cost Recovery system or MACRS. Equipment in this category would include casing, tanks, well head and tree, pumping units etc. Equipment and tangible completion expenses generally account for 25 to 40% of the total well cost.

Depletion Allowance

Once a well is in production, the participants in the well are allowed to shelter some of the gross income derived from the sale of the oil and/or gas through a depletion deduction. Two types of depletion are available, cost and statutory (also referred to as percentage depletion). Cost depletion is calculated based upon the relationship between current production as a percentage of total recoverable reserves. Statutory or percentage depletion is subject to several qualifications and limitations. This deduction will generally shelter 15 per cent of the well's annual production from income tax. For "stripper production" (wells producing 15 barrels/day or less), the depletion percentage can be up to 20%.

Tax Credits

Congress has enacted several tax credits in relation to oil or natural gas production. The enhanced oil recovery credit is applied to certain project costs incurred to enhance a well's oil or natural gas production. This credit is up to 15% of the costs incurred to enhance production. The non-conventional source fuel credit provides for a $3 per barrel of oil equivalent credit for production from the so called qualified fuels. Qualified fuels include oil shale, tight formation gas, and certain synthetic fuels produced from coal.

Lease Operating Expense

This expense covers the day to day costs involved with the operation of a well. The expense also covers the costs of re-entry or re-work of an existing producing well. Lease operating expenses are generally deductible in the year incurred, without any AMT consequences.

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