So, why invest in oil and gas? It’s a category of investment that requires tremendous research and education, and, frankly, a lot of work.
But, if you’ve clicked this far, you’re likely already formulating some ideas in your head on why to invest in oil and gas. Let’s run through them.
- The fact that you can use science to minimize risk is a major reason to invest in oil and gas.
- You aren’t trying to ride the most recent trend in the start-up world.
- You aren’t betting on whether a bunch of teenagers will like your app to share photos more than someone else’s app to share photos.
- Investing in oil and gas is all about applying science to minimize risk.
- Engineers and geologists create hypotheses as to where hydrocarbons (oil and gas) lay trapped under the surface.
- Then they use existing results and data to test their results.
- The final drill site is selected based on the scientific method.
- Or, an engineer might use the scientific method to troubleshoot an existing well that is hypothesized could hold additional production.
- The scientific process plays a major role in the oil and gas industry.
You can minimize risk in the structure of the deal.
- Beyond using the scientific method to reduce risk in the selection of projects to invest in, you can structure deals in such as way as to minimize risk.
- This is the thinking man’s game.
- You aren’t just throwing money at an app that messages the word “Yo” to a friend or colleague.
- Yes, that was a real thing.
- Instead, with oil and gas, you can structure your deals in such as way as to reduce risk. You can diversify your project across multiple wells owned by the same operator. You can make payment contingent on meeting progress benchmarks. You can seek out assets that are distressed that can be purchased cheaply and re-worked for relatively small amounts of capital to generate strong returns.
It’s a bigger return environment.
- Oil and gas investments are a bigger return environment that real estate.
- But, oil and gas is riskier you might argue.
- But, what’s riskier? Getting a 10% return on investment—if you’re lucky—and hoping the real estate market doesn’t crash, or diversifying your risk across as many oil and gas wells as possible where savvy professionals have used the scientific method to reduce risk and have structured the deal in such as way to reduce risk even further?
- Here’s the catch.
- You don’t even have to answer that question.
- No one is advocating abandoning the safe, low ROI investments provided by REITs, the stock market, and bonds, etc.
- But, you do need to invest a portion of your portfolio in oil and gas to help give your investment portfolio the ability to generate stronger returns.
With EnergyFunders, you can invest in oil and gas by doing the following things we told you about earlier on, a few pages ago:
- Negotiate your deal to win in any price environment.
- Diversify across many wells, many assets.
- Invest in the well.
- Diversify your project type.
- Don’t walk away when prices are low.
- Don’t let a brochure satisfy your due diligence.
- Don’t pay retail prices.
- Understand the deal structure.
- Insist on transparency.
- Be aligned with a team of oil and gas professionals.
- Remember, our sole revenue from a project is a small carried interest in each project financed through the platform.
- We’re right there with you.
- On the same team.
- We believe in diversification, transparency and empowering the investor.