Introduction

Oil and gas exploration requires significant capital investment, and industry participants often utilize various financing structures to share risk and reward. One such structure is the “third for a quarter” carry through casing point arrangement. This white paper explains the mechanics of this structure, its financial implications, and its benefits to both investors and operators.

Definition of “Third for a Quarter” Carry Through Casing Point

The phrase “third for a quarter” refers to a financial agreement in which an investor agrees to pay one-third (1/3) of the total drilling and completion costs in exchange for receiving one-quarter (1/4) of the working interest in the well. This results in the investor contributing more than their proportional share of costs relative to the interest they receive. The “carry through casing point” component means that the operator or another party is partially carried (i.e., does not pay their share of the costs) up to the point at which the well is either cased for completion or declared non-viable and plugged.

Before Casing Point vs. After Casing Point

Understanding the financial obligations before and after casing point is crucial:

Before Casing Point

• Covers all costs incurred up to the decision to case or abandon the well.
• Includes leasing, permitting, drilling, logging, and formation evaluation.
• The investor, under the “third for a quarter” structure, pays a disproportionate share of these costs.

After Casing Point

• Includes completion and production costs, such as casing, cementing, perforating, and fracking.
• All parties, including the previously carried operator, begin paying their proportionate share of additional costs.

Financial Implications

In a “third for a quarter” deal:

• Investor Overpay: The investor pays 33.33% of the costs but receives only 25% of the working interest.
• Operator Benefit: The operator or promoting party benefits from being partially carried through casing point, meaning they retain a larger share of the working interest while paying less than their full proportionate cost.
• Risk vs. Reward: The investor takes on additional financial risk upfront but gains access to the well’s potential production without direct operational responsibilities.

Why Do Investors Agree to This Structure?

Despite paying a premium, investors may find “third for a quarter” arrangements attractive for several reasons:

• Access to Deals: Provides participation in projects that may otherwise be unavailable.
• Upside Potential: If the well is productive, the investor benefits from long-term revenue.
• Diversification: Allows investors to spread risk across multiple wells.
• No Operational Burden: The investor does not need to manage drilling operations.

Conclusion

The “third for a quarter” carry through casing point arrangement is a widely used financing structure in oil and gas exploration. While it imposes a higher financial burden on investors upfront, it provides them with access to drilling opportunities without operational responsibilities. Meanwhile, operators benefit by securing funding while retaining a greater share of the well’s potential production. Understanding the trade-offs in this structure is essential for making informed investment decisions in the oil and gas industry.

For further inquiries, please contact COGJV’s investor relations team.

Clarke Oil & Gas JV, LP
Clarke Energy Fund Management, LLC