We’ve been talking to oil and gas professionals about their preferred oil and gas investments.
Spoiler Alert: They like to invest in oil wells directly.
There are lots of ways to invest in oil and gas, but the technical professionals we’ve spoken to all like to invest in oil wells, as directly as they can.
For legal and tax reasons, investments have to be structured certain ways. But oil and gas professionals are a data-driven group, and they like their deals with as little extraneous factors as possible
1.) They Love Evaluating Risk
Secondly, publicly traded companies are diversified to the hilt. While we’ve always favored diversification, the asset diversity in publicly traded companies makes it difficult to intelligently evaluate risk.
An oil and gas professional may be an expert in the Permian basin but have no idea about the geopolitical ramifications of an investment with Russia, Venezuela or Argentina, countries that don’t exactly have a great track record of protecting the foreign investors’ property rights.
2.) They Love Control of Their Investments
Oil and gas professionals are less interested in investing in publicly traded oil and gas companies because they can be exposed to risky corporate decisions that have nothing to do with the quality of the asset.
For example, many companies rapidly expanded using debt to purchase oil and gas assets that were strong. However, they had financial hardships when prices fell and financial projections didn’t match up with requirements to repay their debts. Those companies’ stock value plummeted despite all the hard work they spent doing due diligence on the assets involved.
When they invest in oil wells at costs that make sense in a range of price environments, oil and gas professionals to immunize themselves from risks that originate at the boardroom, not at the well head.
These data-driven professionals want to examine the merits of oil well projects, not the merits of corporate decisions.
3.) They Love the Tax Advantages
Oil and gas tax benefits include intangible drilling cost, tangible drilling cost and depletion.
4.) They Love Data-driven Investments
Technical oil and gas professionals are comfortable evaluating:
- Seismic logs
- Well placement in relation to other producing wells
- Area geology and production techniques
What we learned speaking to oil and gas professionals is that the more macro-level the investment, the less comfortable they felt, such as investing in publicly traded oil and gas companies.
First, this is because when evaluating a publicly traded company, the geology, the seismic logs and the technology aren’t readily available in information from Wall Street. The assets are given treatment from a macro-level and Wall Street financiers write about assets, not technical professionals.
Here’s the problem with Wall Street from the perspective of the technical experts in oil and gas:
The data just isn’t there.
To pour over.
To argue about.
Think about it this way:
Would you rather invest in a Wall Street fund that buys house mortgages? Or, would you rather invest in individual houses?
If you chose the second version, you probably made money on real estate in the 2000s despite the 2008 crash.
Let that sink in.
Investing in Wall Street-created avenues is great for Wall Street.
For you, not always.
5.) They Love Transparency
To invest in crude oil, oil and gas professionals demand transparency. They need deal structures, AFE costs, and geological information to be transparent.
When deals lack transparency at industry conferences, oil and gas professionals walk. As they should.
Going forward, technical experts will influence outcomes as to what projects receive investments.
Evaluate and Invest in Oil Wells in One Easy Platform
Our goal at EnergyFunders is to bring technical experts further into the fold and integrate them as never before.
The world is getting smaller and more connected. Direct investments are becoming more available and they are getting the transparency they deserve by dedicated professionals who are experts in their fields.
Oil and gas professionals want to invest in oil wells.
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