A more thorough explanation:

Definition: The payout period refers to the amount of time it takes for an investment to generate enough revenue to cover the initial investment. In the context of oil-and-gas law, it refers to the time it takes for a well to produce enough oil or gas to pay back the investment in the well.

Example: Let's say you invest $10,000 in a rental property. The monthly rental income is $1,000. The payout period would be 10 months, as it would take 10 months for the rental income to cover the initial investment.

In the oil-and-gas industry, the payout period is an important factor in determining the profitability of a well. For example, if it takes too long for a well to produce enough oil or gas to cover the investment, it may not be a profitable venture.

Example: A company invests $1 million in drilling a well. The estimated payout period is 2 years. If the well starts producing oil or gas within that time frame, the investment will be profitable. However, if it takes longer than 2 years, the investment may not be worth it.

These examples illustrate how the payout period is used to determine the profitability of an investment. It is important to consider the payout period when making investment decisions, as it can help determine whether an investment is worth the risk.