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Strategic Investing in Energy Chestnut Petroleum Inc. www.chestnutpetroleum.com 5050 Quorum Dr. Ste #325 Dallas, Texas 75254 Toll Free 877.412.7200 Ph: 972.233.9200 Fax: 972.233.1307 Dear Investor, Chestnut Petroleum Inc.'s goal is to educate investors about the different types of investment opportunities that exist. While we specialize in a specific area of private placements for the private investor, it is important to understand each of these investments in the energy sector. We believe that a diversified Investor is an intelligent investor. America is facing an Energy Crisis. For the first time in the history of the United States is competing globally for reserves. Countries such as China and India are industrializing at a phenomenal rate. We are inundated daily with information about energy, war, and political unrest in foreign nations. Regardless of the political ramifications, sophisticated investors have realized that we are dependent on oil for the foreseeable future. Due to these facts investors are looking for ways to become involved in domestic oil exploration and production, so that we will be able to greatly reduce our dependence on foreign oil, as well as benefiting from the great tax incentives offered by the Government.
1Where does the U.S. produce oil and natural gas?
The oil and natural gas that power our cars, homes and businesses are produced in 33 of our 50 states (see map). The top five producing states are Texas, Louisiana, Alaska, Oklahoma, and California.
Approximately 25% of U.S. oil and gas is produced offshore on the Outer Continental Shelf (areas more than 3 miles from shore owned by the federal government). Another 5% of oil production and 10% of gas production is from onshore lands owned by the federal government.
Over 290,000 engineers, geologists, geophysicists, drillers, roughnecks, and other skilled personnel are involved in producing our nation's oil and gas. These individuals are dedicated to supplying our energy needs safely, efficiently, and in harmony with the environment.
The United States is the third largest oil producer in the world, behind only Saudi Arabia and Russia. In 2000, our country's 2.1 billion barrels of produced oil came from nearly 555,000 individual oil wells. The 19.6 trillion cubic feet of natural gas produced in the U.S. came from slightly more than 307,000 wells. That's a total of over 860,000 wells spread across our nation pumping out the oil and gas that the U.S. needs to power its economy.
Many of these oil and gas wells have very low production volumes. On average, an oil well in the U.S. produces only 10.5 barrels per day. But this figure is misleading; a small portion of wells produce much more, while over 75% of our nation's oil wells produce far less. Nearly 423,000 of our nation's oil wells are classified as "stripper" wells. This means that they produce less than 10 barrels per day. On average, these stripper wells produce only 2 barrels per day, but collectively, they account for nearly 15% of our domestic oil production. Many of these wells have continued to produce these small daily amounts for decades. The low production of these wells is offset by much higher production from newer wells and those in higher productivity provinces like Alaska and offshore.
Why do most wells produce so little? Most oil and gas wells are very old. Since oil or natural gas is being removed from a finite underground accumulation, production rates for wells start high and then decline over time. Typically, production from a given well continues until it costs more to produce than the value of the production. This is called "reaching its economic limit." At that point, production ceases, the well is plugged with cement, and the surface area is revegetated and restored.
How high the initial production from a well is, and how fast it declines, are defined by the physical properties of the underground oil or natural gas reservoir. Technology can help the industry to affect those rates somewhat, but it cannot change the amount of resource in the reservoir. With technology, we may be able to prolong how long a well can produce economically at a low rate, but cannot overcome the natural forces that lead to the inevitable decline of each well.
Did you know?
. Most exploration and produ... [download for more]
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