What you need to know about Oil and Gas Investments
Oil and Gas Investments can be a fantastic category to help diversify your portfolio into an area that can substantially increase your overall return on investment. Of course, you know that oil and gas investments carry with them a high degree of risk. The goal is to minimize the risk carried with oil and gas investments while maximizing your exposure to potentially successful projects that can add juice to your ROI. At EnergyFunders, we have a blog set up to a strong educational source for investors. And, we also have an e-book that you can get a basic introduction to oil and gas investments. That being said, there are a few things we can tell you right off the bat about how to minimize risk and maximize reward in the oil and gas investment category.
Diversify across many wells, many assets
There is always a risk of failure in any oil and gas project. Just like there is always a risk of failure in any venture you can participate in. In the oil and gas industry, we can mitigate that risk by diversifying across multiple wells. You also want to diversify across many different assets. The greater diversification you can achieve, the better your risk is managed. This is the same principle behind why major oil and gas companies operate in many oil fields across the United States. You can employ this diversification strategy in your oil and gas investment portfolio by having strong enough deal flow.
Invest in the well
Investing in the well is the most potentially lucrative place to put your oil and gas dollars. When you invest in oil and gas companies on the stock market, the only revenue you see is after CEO salaries, salaries of the company bureaucracy, and rent in a swanky corporate office building has been paid out. Go straight to the source. Invest in the well.
Diversify your project type
There are many types of projects you can invest in. You can invest in shallow wells, shale wells, re-entering and re-working old wells, deep wells, deep wells being re-worked, shallow wells being re-worked, deep wells being drilled. The list goes on and on. Oil and gas are not a monolithic investment category. There is room for a large amount of diversification within the industry.
Don’t walk away when prices are low
Walking away when prices are low is a major mistake in oil and gas investing. When prices are low, it is never easier to negotiate the best deals that make sense in a low price environment but which will really juice your ROI if prices go up.
Don’t let a brochure satisfy your due diligence
The skill sets required to put together a good brochure and the skill sets required to put together a great oil and gas project, are completely 100% different. Don’t let a brochure satisfy your due diligence. Dig deeper. Have the project vetted by oil and gas technical experts and have the deal structure negotiated and put together by experts in the field.
Don’t pay retail prices
Paying retail prices on a t-shirt is one thing. Don’t ever pay retail prices for an oil and gas well. You want business partners who only make money when the project is successful. You don’t want someone banking profits regardless of whether you’re successful or not.
Understand the deal structure. Insist on transparency
To avoid retails prices, cut out the middleman. You can only do this when you understand the deal structure and you understand what a fair deal is from a historical perspective.
Be aligned with a team of oil and gas professionals.
With EnergyFunders, we strive to offer transparent deals that have been fully vetted by a team of oil and gas professionals. Our sole revenue from a project is a small carried interest in each project financed through the platform. So, we’re right there with you. On the same team. We believe in diversification, transparency and empowering the investor.