Q. Where does Parwest operate and explore for oil and gas?
A. Currently in Oklahoma, Kansas, and Texas. The Sulfur River Prospect in Texas is the primary focus, with over fourteen thousand (14,000) acres leased as of July 2010.

Q. What is the cost to participate in an oil/gas exploration or development well?
A. It depends on the lease and depth of the well. Most of Parwest wells range in depth from 4,000 to 8,200 ft. When venturing into a new area, however, well depths may be deeper. For example, two wells are scheduled for the Sulfur River Prospect, one to 6,500 ft and the other to 9,500 ft. The expense of wells in drilling programs can be broken down into two parts: drilling and completion.

Q. Other than the initial investment costs for the drilling and completion of a well, are there other costs that I can incur?
A. Generally no. Oil and gas companies usually use two types of agreements for an investor. One type participation agreement is referred to as a “Cost Plus” basis. This means that the investor pays their pro rata share of all the actual costs of drilling and completing a well, plus an additional 10-15% fee to the operator for management, supervision, etc. The second type participation method is on a “Turnkey” basis. Most investors prefer this method as it limits their exposure. The investor will be charged a pre-determined fixed charge for the cost of drilling the well to total depth and will pay a pro rata share of the actual completion costs. Should the drilling cost more than the investor paid under the turnkey agreement, the investor cannot be charged any additional fee for the drilling.

Q. What costs are involved in the operation of a well?
A. An Operating agreement is entered into between the investor and the operator. In most instances this is a standard form used throughout the industry and establishes the terms and conditions by which the well will be operated and expensed. There is a fixed rate charge usually billed as “Administrative and Overhead Charge.” This monthly charge occurs after a well is completed and is usually based on the accepted COPAS accounting raters, which includes expenses for clerical, accounting, telephone, and general office expenses attributable to the well. Parwest charges $600 a month for these services. There is also a lease operating expense (LOE) which includes the pumper (field worker) and this averages $175 to $400/month. All other expenses, such as repairs, maintenance, equipment replacement, etc., are billed out at cost. The expenses are billed out monthly on a Joint Interest Billing and pro rated to each working interest owner. For example, if you own a one-percent (1%) working interest and the total monthly expense is $500, you are billed for 1% of $500.

Q. How am I paid for my share of the oil and gas sold?
A. An “Assignment and Bill of Sale” from the operator to you will be prepared and recorded in the county where the well and leases are located. You will be given the original recorded instrument. After the date of first production from the well, a Title Attorney prepares the “Division Order Title Opinion,” which lists each owner’s decimal interest in the well. The operator prepares individual “Division Orders” for each owner to sign and return to the operator. The company that purchases the oil/gas from the operator remits monthly purchase statements and payment to the operator who then remits a check to each owner for their pro rata share. Detailed information on the amount of gas/oil sold, price received, etc., will accompany each owner’s check.

Q. If oil/gas is discovered on a project in which I have invested and Parwest decides to drill additional wells on the lease, will I have the option to participate?
A. Yes. Investors participating in the initial well receive an interest in all of the prospect acreage and will have right of first refusal to participate in further development of the lease. In addition to other wells, this development may include geological and geophysical surveys to delineate the prospect.

Q. What are the tax advantages in participating in an oil/gas project?
A. There are many tax advantages to investors in oil/gas exploration. Parwest is among 5,000 US independent oil and gas companies. These independents drill over 80% of the wells and produce over 60% of the natural gas and 40% of the oil. The tax advantages are intended to encourage companies, individuals, and groups to invest in energy-related ventures. Some of these advantages under current IRS rules are given below:

  1. Intangible Drilling Cost - Whether the well produces oil/gas or not, this portion of the cost may be written off 100% depending upon the individual investor's tax situation. You should consult with your tax accountant.

  2. Completion Cost - Whether the well actually produces or not, a portion of this expense may be written off. For example, 100% of the intangible completion costs may be written off and, as of 2010, up to $250,000 of tangible completion costs (lease and well equipment cost) may be written off in the year it was placed in service

  3. Producing Leasehold Cost - This cost represents the investor's share of oil and/or gas reserves remaining in the ground. As those reserves are produced, a certain percentage of that production may be deducted each year. That deduction is called "Percentage Depletion." All income from oil and gas sales is subject to depletion allowance on your income tax. Currently, the depletion allowance is 15% of total gross oil and gas income. Thus, you pay taxes on only 85% of your total oil and gas income. These are the major tax benefits for oil and gas investors. There are other advantages to be determined on an individual basis in consultation with your CPA or tax attorney.

  4. All of the above (1-3) should not be construed to be tax advice. You should consult your own tax attorney or accountant regarding these matters.