--> Abstract: Recommendations for Starting a New Business as a Petroleum Geologist, by L. T. Billingsley; #90928 (1999).
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BILLINGSLEY, Previous HitLEENext Hit T.
Sandia Oil & Gas Corporation

Abstract: Recommendations for Starting a New Business as a Petroleum Geologist

The purpose of this paper is to aid geologists in starting new independent businesses utilizing petroleum geology. The first step is to develop business goals, plans and purpose (called “Plan”). This early, formative stage of the business should not be overlooked, because reference to these plans will be necessary when the newly independent geologist is confronted with the myriad of upcoming decisions. The independent geologist's most valuable asset is time, and an effective Plan will help keep him or her focused. Too many detours from the Plan cause missed opportunities within the original game plan. The Plan must include the author's areas of expertise and interest. The reason for being an independent is not to force you to do something for which you are disinterested or unsuited.

Mentors are a necessary part of an independent business, because they can serve as the de facto Board of Directors. They can help with forming and adjusting the Plan. Being independent does not mean being alone. Effective mentors need at least two attributes. They must be successful themselves and have something to gain from the recipient's success. Mentors can and should come from a broad range of occupations. Examples include accountants, lawyers, engineers, and other petroleum geologists. Some mentors may receive direct benefits from an independent's growing business, such as the company's Previous HitlawyerTop, contract accountant, or consulting engineer. Others may be successful in their own career, and they enjoy giving back to their profession by mentoring new independents.

Economic evaluation might be an unfamiliar tool to a newly independent geologist. Economic evaluation software is essential in many aspects of an independent's business. Potential prospect buyers need to see the projected outcome of investments, including the effects of taxes, operating expenses and changing prices. Many potential investors will run their own program, but the prospect seller must be able to support their own economic projections. Evaluation programs allow modeling of previously successful fields, which lends credence to new prospect projections. Also, the independent needs to be able to evaluate existing producing properties, both their own and that of others.

Independent petroleum geologists should consider purchasing production with loans. In recent years banks and mezzanine financing companies have been aggressively lending money for production purchases. If the biggest assumptions in any production purchase are satisfied, namely price and production volume, then the independent's annual rate of return on investment can be 30-40%. This rate can be achieved by buying property at a 20% discount rate and borrowing 75% of the purchase price. The rate of return for the independent is based on the investment of 25% of the purchase price. The 25% investment can be in the form of cash or existing producing properties. Other benefits of owning producing property include the opportunity to explore and exploit properties without expending additional capital leasehold funds.

Independent geologists must develop alliances with other professionals. Usually a new business can not afford or justify hiring all the professionals that will be necessary to function in the petroleum industry. Consequently, consultants in complementary fields, such as engineering, land, accounting, and law are necessary. If chosen carefully these other professionals can provide more than just service for a price. For example, a land professional with contacts that will buy prospects is worth more than a simple consulting fee. Independents should carefully consider sharing the equity ownership of individual prospects or the independent's company with selected allied professionals. Just like the independent petroleum geologist, other professionals do a better job with an equity stake.

Finally, new independent geologists need to learn some basic accounting. Although an accountant should prepare monthly or quarterly financial statements, the business owner needs to learn the impact of various decisions. Financial statements are necessary to track the financial position of the company and to report on the financial health of the company to lenders and investors.

AAPG Search and Discovery Article #90928©1999 AAPG Annual Convention, San Antonio, Texas