How to Invest in Oil
How to Build Your Strategy for Investing in Oil Wells
EnergyFunders gives you a strategy for investing in oil wells and empowers you to build your own investing plan for success. First, we make it easy for you to invest in multiple projects at lower buy-in costs so you can diversify your portfolio. Then, we show you how to invest in oil – and control your investments.
Diversify Your Investments
In any investing, there’s risk. While you can review data, create a plan and account for contingencies, you’ll always want to diversify your investments. When learning how to invest in oil, this means investing in more than one well. This increases your chances of one of your wells paying large dividends and spreads your risk.
With EnergyFunders, you can invest in both vertical and horizontal drilling projects. Vertical drilling projects are less predictable but have lots of potential for high payoffs. Horizontal drilling is easier to estimate but sometimes has less dramatic returns. They each have advantages, and when you invest in both you can create a balanced portfolio.
Account for Oil Price Fluctuations
We’ve all watched oil prices at the pump rise and fall throughout the decades, and no price per barrel lasts forever. That’s why it’s wise to invest in oil wells that can profit you in any oil price environment. Even if oil prices are high today, they might not be tomorrow, so we advise looking at oil well investments that make sense in any price environment. Then, if you invest during high oil prices and they fall, you’re still making money. Alternatively, if you invest during low oil prices and they rise, you’ll make an even bigger profit.
We evaluate high, low and mid-case scenarios and share them with you on our platform, so you can see the potential returns in a variety of situations. This way you can evaluate the data and determine which investments make sense for you.
Partner With Proven Operators
Past performance is often the best indicator of future success, which is why we only work with operators with a solid track record. Drilling is a complex endeavor that takes a solid team of professionals with engineering, legal, geoscience and financial expertise. That’s why we have a team of landmen, engineers and lawyers who look at our oil investing opportunities, and we present only the ones that pass our vetting process to investors.
Dive into the Data
No matter your background, you want to look at the data of an investment. Check the information on the operator, geology of the area and lease agreements. We’ve found that the best operators are willing to be upfront and transparent about oil investing opportunities. We present all the information that we review on our platform so you can take control of your investments and choose projects that are right for you.
Invest Through the Life of the Well
When you invest with EnergyFunders in the well exploration phase, you’ll invest through all the phases of the well.
This is the first phase of drilling the oil well. The exploration well is the first on the lease and it shows you the success you can have in drilling in the area. It is the most risky phase of drilling because even with expert data and third-party engineering reviews, there are some things you can determine only by drilling.
The exploration phase lasts one to two years. This phase has:
- Large tax benefits
- Low buy-ins
- Option to pick operators and projects
- Access to third-party engineering reviews and project details
- Dry hole risk (though tax benefits help offset risk of loss)
- Additional cash requirements
We suggest selecting the operators you work with carefully or going through a platform that vets operators such as EnergyFunders.
The next phase is development. After drilling an exploration well, you have data about the lease and sometimes have the opportunity to drill additional wells – this is where oil well drilling can really pay off.
The development phase can last three to five years as you identify other opportunities where drilling on the lease can be profitable. This phase brings:
- Lower drilling cost (The infrastructure is paid for in exploration phase.)
- Reduced dry hole risk
- More predictable new wells (You already have data on the first well.)
- Potential for high ROI (It’s possible to have a three to 10 times return.)
We advise developing multiple leases with multiple wells over time to build your portfolio and diversify your risk.
Operation is the goal phase. In the operation phase, your well or wells are producing oil and you benefit from a regular monthly cash flow. Plus, since each year a smaller amount of oil is produced, you can take advantage of the federal government’s depletion allowance on your taxes.
Operation can occur over six to 20 (or more) years. This phase involves:
- Little to no capital expenditure (The lease is in maintenance mode.)
- Monthly cash flow
- Residual income for years to come
Take advantage of the depletion allowance of 15 percent on oil and gas income for investors. Enjoy the years of returns on your well in the operation phase.
Where to Start Investing in Oil Wells
If you’re ready to get begin oil investing, create a free account to view all of our current vetted investments, and start investing your way today.