Q.  Where does Wilco Energy operate and explore for oil?
A.  Currently in south, central Kentucky.  Exploration is focused primarily on the Knox Dolomite Formation with wells yielding between five and 250 barrels of oil per day. 

Q.  What is the cost to participate in an oil exploration or development well?
A.  It depends on the lease and depth of the well.  Most of Wilco’s wells range in depth from 1400 to 1700 feet.  When exploring in new areas, however, well depths may be deeper or a zone capable of producing commercial quantities of oil may be encountered at depths less than 1400’.  The expense of wells in any drilling program can be broken down into two parts:  drilling and completion.

Q.  Other than the initial investment costs for drilling and completing a well, are there other costs that I can incur?
A.  Generally no.  Oil companies usually use two types of agreements for an investor.  One type of participation agreement is referred to as a “Cost Plus” basis.  This means that the investor pays their pro rata share of all the actual costs of drilling and completing a well, plus an additional 10%-15% fee to the operator for management, supervision, etc.  The second type of participation is on a “Turnkey” basis.  Most investors prefer this method as it limits their exposure.  The investor will be charged a pre-determined fixed charge for the cost of drilling the well to total depth and will pay a pro rata share of the actual completion costs.  Should the drilling cost more than the investor paid under the turnkey agreement, the investor cannot be charged any additional fee for the drilling.

Q.  What costs are involved in the operation of the well?
A.  A Limited Partnership Agreement is entered into between the investor and operator.  In most instances this agreement establishes the terms and conditions by which the well(s) will be operated and expensed.  There is a fixed rate charge billed as “Administrative and Overhead, and Operating Charge”.  This monthly charge occurs only after a well is completed and is charged per operating lease.  This monthly fee pays for clerical, accounting, telephone, and general office expenses.  In addition, a well tender is paid to see to the daily operation of the wells.  All other expenses such as repairs, maintenance, equipment replacement, etc., are billed out at cost to the investor’s level of participation.  For example if you own 10% working interest, and the monthly expense is $600.00, you are billed for 10% of $600.00.

Q.  How am I paid for my share of the oil sold?
A.  An “Assignment” from the operator to you will be prepared and recorded in the county where the well and leases are located.  You will be given the original recorded instrument.  After the date of first production from the well, a “Division Order of Interest” will be prepared by the operator or purchaser which lists each owner’s decimal interest in the well.  In this area, oil is either sold to Marathon or Sunoco Logistics in Houston.  The Division Orders will be mailed to each investor for signature; Division Orders will then be returned to the purchaser.  The purchaser remits monthly purchase statements and royalty checks the month following shipment of oil to the operator who then remits a check to each owner for their pro rata share.  Detailed information on the amount of oil sold, price received, etc., will accompany each owner’s check.

Q.  If oil is discovered on a project in which I have invested and Wilco Energy decides to drill additional wells on the lease, will I have the option to participate?
A.  Yes.  Investors participating in the initial well receive an interest in all of the prospect acreage and will have first right of refusal to participate in further development of the lease.  In addition, to other wells, this development may include geological and geophysical surveys to delineate the prospect.

Q.  What are the tax advantages in participating in a drilling project?
A.  There are many tax advantages to investors in oil exploration.  Wilco Energy is among 5,000 independent oil companies that drill over 80% of the wells and produce 40% of the nation’s oil supply.  The tax advantages are intended to encourage companies, individuals, and groups to invest in energy-related ventures.  Some of these advantages under current IRS rules are given below:

• Intangible Drilling Cost:  whether the wells produces or not, this portion of the cost may be written off 100% depending upon the individual investor’s tax situation.  You should consult with your tax accountant.
• Completion Cost:  whether the well actually produces or not, a portion of this expense may be written off.  As of 2010, up to $250,000 of tangible drilling completion costs (lease and well equipment costs) may be written off in the year it was placed into service.
• Depletion Allowance:  as reserves are produced, a certain percentage of that production may be deducted each year.  That deduction is referred to as “Percentage Depletion”.  All income from oil is subject to depletion allowance on your income tax.  Currently the allowance is 15% of total gross oil income.
• Any of the above should not be considered tax advice.