Instead, try to find projects which will at least generate modest profits in any kind of pricing environment, even when crude oil prices are very low. This strategy positions you to reap outsize rewards when prices spike upward. Another prudent approach is to invest directly in the oil well itself, rather than a crude oil company. When you invest in an oil drilling company, you are indirectly paying salaries and you become exposed to risk created at the boardroom, not the well head. But, when you invest directly in the well, your actual return on investment can be much larger. Spreading risk has always been a prudent investment strategy and it’s certainly true in the crude oil industry. By investing in many different wells, and many different types of oil drilling projects, you can greatly reduce your exposure to failure on any one project. Most importantly, don’t abandon ship when oil prices fluctuate downward. Sit through the clouds, and wait for the sun to come back out. If you try to cut your losses during a downturn, it can eliminate your exposure to the rebound.

Natural gas opportunities exist in many different regions and basins across the United States. Shale is the opportunity that receives the most attention in the press, but many traditional reservoirs are still available for production of natural gas. Putting your entire investment in a small number of projects dramatically increases your exposure to risk in the event of single-project failure. Ensure that your investment portfolio includes participating directly in the natural gas well itself, rather than solely in the companies doing the drilling (i.e., expand your investment beyond the publicly traded markets). When you invest in a company, you are indirectly paying its expenses and paying its employees, whereas investing in a well cuts through all that extra expense and has the potential to unlock the highest return on your investment. When you’re investing in a drilling project, make the effort to find out the real costs of drilling, so you’ll have a better idea of what your costs should amount to if you were to become involved with the project. You shouldn’t be paying an exorbitant amount just to participate in a drilling project. If you allow yourself to be overcharged as a partner, your profits will be far less than they might have been. Find out the fair market value of similar projects and what participation fees were, if any. This will give you a basis for negotiating your own involvement on the projects which appeal to you. Or, join a trusted group that shares the responsibility for vetting and negotiating deals. Regardless of your approach, always demand transparency in deal structure and finances.