By Younas Chaudhary

Over the last four decades, I have forecasted short and long-term prospects for my company’s unpredictable business of owning and operating oil and gas wells. What has helped me stay on course was simple common sense business principles. I have used sophisticated modeling software, analytical predictions, and third-party consultants, but at the end of the day common sense has prevailed in running my successful businesses.

How does an oil well behave? We cannot predict exactly. Will it produce more oil, more gas, or more water? We do not know until it does. And, what about product prices? They fluctuate every moment in this global economy.

I have survived and done well for over the last 40 years taking a diehard attitude to closely watching all expenses. Since day one I knew that adjusting hard costs determined by market rates can get me only so far. Hard costs include utilities, water hauling, chemicals, and gaugers who are oilfield personnel, who visit well sites every day. Over time, I learned that the only costs that I could control are the soft costs such as well workover jobs.

Over the years I learned that managing oil and gas wells production is a lot like babysitting. A hawkish eye to control unwanted expenses in every area whether big or small is essential. As my business grew, I became confident and good at forecasting revenues, costs, and possible profits across the months and quarters despite highly fluctuating oil prices. This was not easy. I used the simple common-sense formula of controlling what I could in the best way possible.

As my businesses grew, I purchased wells and drilled new wells to increase cash flow. I took calculated risks knowing that I could predict the hard costs of operating wells located throughout the USA. I often did it after thoroughly studying the potential acquisition and getting a good read on their history especially their hard and soft costs. I often found the middle path in large oilfields where I could offset minor losses from low oil producing wells whereby there are greater profits from higher producing wells.

Here are a few things I learned on the way:

1. Do your detailed homework before buying anything including oil and gas wells.
2. Be hands-on and watch costs with a hawkish eye. Any leakage of funds must be stopped immediately.
3. Weak oversight will financially ruin you. No software or consultant will be able to get you back on track.
4. Preplan and act on time to stop producing losses like negative income producing wells. Stop such bleeding quickly.
5. Save money for a rainy day.
6. Do not put all your eggs in one basket.
7. Diversify as opportunities come your way.
8. If you cannot manage your own home personal expenses properly, do not ever get into any business.
9. Patience, consistency, and risk taking are critical to the success of any business, including oil and gas business, so do not expect overnight success.
10. Take timely decisions and live with them. Never delay the decision-making process as it will have negative consequences.

Disclaimer

The views, thoughts, and opinions expressed in this article are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. Further, I make no warranty regarding the accuracy or effectiveness of my recommendations, and readers are advised to consult other advisors as well as their own judgments in making business decisions.

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