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How to Recognize (and Avoid) Speculative Oil Investments
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How to Recognize (and Avoid) Speculative Oil Investments
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How to Recognize (and Avoid) Speculative Oil Investments

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How to Recognize (and Avoid) Speculative Oil Investments

While every investment comes with inherent risk, oil investments are an especially risky business – albeit one with potentially outsized returns.

EnergyFunders seeks to minimize risk by focusing solely on oil investments with reputable operators and conducting due diligence about projects. We choose not to invest in oil deals whose success requires speculation about actions third parties might take (something difficult to control).

Examples of Speculative Oil Investments

Mineral Acquisition Projects

Large-scale mineral acquisition projects are deals in which speculators seek investors to help finance the purchase of minerals from as many people in an area as possible. The speculator hopes that an oil and gas company will target the area for production and the owners of the mineral rights will earn royalties.

These deals are highly speculative because they require a large-scale leasing effort, plus expensive due diligence of minerals purchased.

Secondly, most mineral owners don’t sell interest in their minerals. The last major example of when speculators bought mineral interests in these types of deals was during the Great Depression.

Thirdly, the chance of a speculator – typically without insider geological expertise – identifying a lucrative area where they can purchase minerals cheaply before an oil company discovers them is extremely low.

Royalties in Oil and Gas Leases

Royalty or overriding royalty for leases where the more lucrative formations will be developed “later” are a common source of speculative investments.

The royalty or overriding royalty owner has no control of when drilling will occur on their oil and gas lease. Yet you will sometimes find royalty owners willing to sell royalty interests on leases where the deeper or the more lucrative formations will be developed sometime around the corner.

Questions you should ask include why the more lucrative formations have not already been developed, what guarantees there are for the upcoming drilling program, and why the royalty owner is willing to sell what is purportedly a windfall.

Lease Flipping

Lease flipping is another potentially lucrative but highly speculative deal to approach with caution.

When lease flipping, a speculator leases directly from the landowner in a situation that is similar to a large scale mineral acquisition project. In one case, the lease flipper leases the mineral owners to poor terms and a long primary term and hopes that another oil and gas company decides to drill wells later.

The other type of lease flipping is when a portion of an existing lease – usually at a different depth formation than where production is occurring – is purchased and marketed to other companies seeking to consolidate a leasehold position at that formation.

These types of deals require an exceptionally strong understanding of market conditions in a particular area, and the investor must rely on the speculator’s skill.

How to Avoid Speculative Oil Investments

There are many variations of speculative oil investments that you should approach with caution. The common theme in all of them is that they require another oil company to see value and act on that value – where they have no obligation to the investor to do so – for the investor to profit.

That’s why EnergyFunders uses the equity crowdfunding model – we only make a profit when you do so we have a vested interested in selecting the best deals where everyone wins.

Create a free account to view our current vetted oil investments or learn more about 11 Major Mistakes to Avoid in Investing in Crude Oil.

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Important Disclosure: Energy investing and private offerings are inherently risky, may lose value, are not insured, are not guaranteed, and are intended for investors who are familiar with and willing to accept the risks associated with private investments, including the loss their entire investment. The securities are not publicly traded, subject to certain restrictions, and are intended for investors who do not have a need for a liquid investment. See investment documentation for more information and important disclosures. Only invest an amount of money you can afford to lose. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website.

EnergyFunders.com and EFMarketplace.com are websites owned and operated by EnergyFunders, LLC. EFMarketplace.com is a website also operated by EF Funding Portal, LLC, a subsidiary of EnergyFunders, LLC. EF Advisor, LLC is an exempt reporting adviser that advises the special purpose entities used in the Regulation D offerings (Rule 506 of Regulation D of the Securities Act of 1933; see 17 CFR § 230.506). Separately, Regulation Crowdfunding offerings on EnergyFunders Marketplace are conducted by EF Funding Portal, LLC, a registered funding portal and member of FINRA. By accessing this site and any pages thereof, you agree to be bound by our Terms and Conditions and Privacy Policy. Neither EnergyFunders, LLC, EF Advisor, LLC, EF Funding Portal, LLC, nor their affiliates provide investment advice or make investment recommendations. No communication, through this website or in any other medium, should be construed as a recommendation for any security offering on or off this investment platform. Unless otherwise stated, any securities listed herein will not be registered under the US Securities Act of 1933 as amended, or any other act. Only Accredited Investors as defined in 17 CFR § 230.501(a) and persons residing abroad in jurisdictions where securities registration exemptions apply may purchase the securities presented through Regulation D offerings (Rule 506 of Regulation D of the Securities Act of 1933; see 17 CFR § 230.506).

By using EnergyFunders.com and EFMarketplace.com, you accept our Terms of Service & Privacy Policy, and agree to the Electronic Consent. If investing, you accept our Investor Agreement.

You may also view our Privacy Notice and our Reg CF Educational Materials.

EF Resources, Inc. Form C-AR

Disclaimer for Marketplace

Important Disclosure: Regulation Crowdfunding offerings are inherently risky, may lose value, are not insured, are not guaranteed, and are intended for investors who are familiar with and willing to accept the risks associated with private investments, including the loss their entire investment. The securities underlying Regulation Crowdfunding offerings are not publicly traded, subject to certain restrictions, and are intended for investors who do not have a need for a liquid investment. See investment documentation for more information. Only invest an amount of money you can afford to lose. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website.

EnergyFunders.com is a website owned and operated by EnergyFunders, LLC. EF Advisor, LLC is an exempt reporting adviser that advises the special purpose entities used in the Regulation D offerings. Regulation Crowdfunding offerings are conducted by EF Funding Portal, LLC, a registered funding portal and member of FINRA. By accessing this site and any pages thereof, you agree to be bound by our Terms and Conditions and Privacy Policy. Neither EnergyFunders, LLC, EF Advisor, LLC, EF Funding Portal, LLC, nor their affiliates provide investment advice or make investment recommendations. No communication, through this website or in any other medium, should be construed as a recommendation for any security offering on or off this investment platform. Unless otherwise stated, any securities listed herein will not be registered under the US Securities Act of 1933 as amended, or any other act. Only Accredited Investors as defined in 17 CFR 230.501(a) and persons residing abroad in jurisdictions where securities registration exemptions apply may purchase the Regulation D securities.

By using EnergyFunders.com, you accept our Terms of Service & Privacy Policy, and agree to the Electronic Consent. If investing, you accept our Investor Agreement.

You may also view our Privacy Notice and our Reg CF Educational Materials.

EF Resources, Inc. Form C-AR

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