Investing with Midwest Energy Partners

  • Midwest’s overall cash on cash return objectives are dependent on the three different forms of investment that it makes (it is not uncommon to have all three types of investments within one fund)
    • For exploration/development wells our goal is a pre-tax return of 25% or better
    • For purchasing existing production our goal is a pre-tax return of 12% to 15%
    • For enhanced recovery projects (water flooding, surfactant polymer flooding, etc) our goal is a pre-tax return of 15% to 25%
  • Minimum Investment - $50,000
  • Capital Call Structure (typically 10% down, 3 following payments over next 12 months)
  • Significant tax benefits generated by direct working interest participation which flows through the K-1’s to the corporate/personal return include:
    • Approximately 2/3rds of new well costs can be deducted (if no AMT) in year one
    • If AMT, deduction is amortized over 5 years
    • 15% depletion allowance on producing wells
  • Monthly income typically begins within 60 days after a well is deemed commercial, completed, and producing
  • Expected well life in excess of 10 years
  • Competitive fees vs industry standards
  • Midwest diversifies drilling risks
    • By accumulating investor funds, it allows multiple drilling events in each LLC
    • Operator generally invests 1/3rd of the drilling cost in each drilling event
  • “Turn-key” service for the investor handling all aspects of the drilling and production process as well as all legal and accounting work
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Finding Oil

The predominant concern by investors contemplating an investment in the oil and gas industry is “dry holes.”  “Dry Holes” are defined as any well that does not produce oil or gas in commercial quantities. Often, a well may flow water, gas, or oil, but not in amounts large enough to justify the costs to complete the well for production.

Chance of Success is estimated from historical data and is the number of successful wells completed as producers, divided by the total number of wells drilled.

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Sources: American Petroleum Institute (“API”) and Nontechnical Guide to Petroleum Geology, Exploration, Drilling & Production by Norman J. Hyne, Ph.D.
All info as of 12/31/2014
1)  Midwest will limit Wildcat wells to 10% of any drilling package.
2)  66 wells by Midwest and 12 wells by Herrick at CountryMark. One of those twelve was a dry hole.
3)  Industry percentages include gas wells, which typically are a lower risk to drill due to larger production zones.

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Midwest’s Wells by County Location (Producing Only)

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Wells as of 12/31/2014
The Map shows the current wells that Midwest owns a working interest in by county. Midwest also has three wells located in Kansas.

Illinois Basin

History
  •  First Oil Production – 1889 (Vigo Co., Indiana)
  •  1905 - 1915 (discovery of anticlines)
    •  1908 was the third-most oil productive area in the US
  •  1937 - 1943 (seismic, stratigraphic traps)
    •  1940 production peaked at 430,000 BPD (157 million barrels for the year)
  •  1954 - 1964 (fracking, water-flooding)
  •  The large oil companies left the basin in the late 1960’s due to declining production leaving the basin operated by primarily small, family operators
 
Present
  •  New drilling techniques and technologies are creating enhanced oil recovery (EOR)
    •  1998 - Present (Horizontal drilling)
    •  2010 - Present (Surfactant-Polymer (SP) Flooding)
  •  Today, roughly 35,600 barrels of oil come out of the Illinois Basin daily, equating to 13,000,000 barrels a year.
 
What’s left
  • 12 billion barrels - estimated original oil in place
  • 4.5 billion barrels - historic oil production
  • 4.1 billion barrels - estimated future recoverable reserves

The Illinois Basin covers approximately 60,000 square miles in central and southern Illinois, southwestern Indiana, and western Kentucky. 99% of Midwest’s Wells are located in the Illinois Basin. We find that our investors like the idea that in a few hour drive we can be at our wells. That gives the investors a sight and feel on their investment.

 

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Transaction Example

NYMEX Crude Oil (Barrel) Prices

Monthly average prices from 2008 to present

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Tax Benefits

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Intangible Drilling Costs (IDC’s)
  • Labor, drilling rig time, drilling fluids, chemicals, mud, leases, and rentals
  • Usually represents about 2/3rds of the well cost
  • Deducted usually in the tax year in which the intangible drilling costs occurred
 
Tangible Drilling Costs (TDC’s) / Depreciation
  • Hard assets such as the wellhead, casing, tanks, pumping unit, and production equipment.
  • Usually represents around 1/3rd of the well cost
  • May be depreciated over 7 years
 

TAX INFORMATION DISCLAIMER:  Midwest Energy Partners, LLC. is not a Tax Advisor, CPA, or Tax Attorney and is not certified to give any tax advice.  Each investment individual may or may not qualify for certain deductions contained herein.  The information on this page is for education purposes only.  It is highly recommended you seek advice from your own tax professional or an accountant that is familiar with these types of investments before making an investment decision.  Midwest Energy Partners, LLC. offers no professional tax advice.

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