Energy Investing in oil and gas can be a great way of diversifying your portfolio, and it can also reap tremendous rewards. It’s good to keep in mind, however, that this kind of investment has the potential for high risk as well, so if you don’t choose your investments wisely, you could suffer serious financial loss.
Oil & Gas Investment Strategies
Here are some strategies you can use to minimize your risk and maximize your chances of being very successful.
The smart investor chooses projects which don’t depend on high retail prices for oil or gas, but instead return a profit regardless of prevailing prices. While this can be difficult to pull off, the ideal scenario is to negotiate an investment which pays off even during periods of low gas prices. Profits will, of course, be lower during these stretches, but a return to high prices is inevitable, and then your profits will soar.
Diversify Your Investments
Diversify Your Investments
Diversification is also very important as an investment strategy because any individual gas or oil project is subject to failure, but a broad range of projects is far less likely to undergo a general collapse. Not only should you diversify across many assets, you should diversify the type of projects you become involved in, for instance, shale wells, shallow wells, deep wells, and re-worked wells.
Whatever you do, stay in it for the long run, and don’t panic when oil or gas prices temporarily plummet. For one thing, trying to walk away from an investment at this time is certain to result in the least favorable terms for you. As everyone who has ever been involved in the oil and gas industry knows, it’s only a matter of time until prices rebound after a downturn, and you’re going to want to be around to reap the profits when that happens.
Crude oil Energy Investing is a great way to round out your portfolio, and the potential for earning huge profits is very appealing. Of course, there are also certain risks associated with this kind of investment, so you need to invest wisely to minimize your exposure to risk factors.
One thing you can do is to avoid becoming involved in projects which rely on high oil prices in order to turn a profit because that’s a recipe for disaster. 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 puts you in great shape to reap huge rewards when prices spike back up again.
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 many other expenses you won’t even know about, but when you invest directly in the well, your actual return on investment is much heftier. 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 start to inch downward. Falling prices are as inevitable as the subsequent rising prices, so don’t lose faith when the market experiences soft demand. Sit through the clouds, and wait for the sun to come back out. If you try to cut your losses during a downturn, it will be the worst possible time to try and recover your investment; you can always count on prices rising again in the very near future.
Energy Investing in natural gas is one of those financial strategies that doesn’t immediately come to mind, but it can be very profitable financially if approached in the most prudent manner. The general idea when investing in natural gas is to reduce your exposure to risk, while concurrently maximizing your potential for earning profits, and this can be done by keeping some general guidelines in mind.
There are lots of different natural gas projects you might invest in, and you should choose several different types of these projects to have diversification working on your side. Putting all your eggs in one basket, or in just a few, drastically increases your exposure to serious financial loss in the event of single-project failure. Having found the kinds of projects you want to invest in, make sure that you invest directly in the natural gas well itself, rather than in the company which is doing the drilling. When you invest in the company, you are indirectly paying its expenses and paying its employees, whereas energy investing in a well cuts through all that extra expense and increases your return on 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, and 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 for them, so that you have some basis for negotiating your own involvement on a project which appeals to you.