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 you can succeed with investing in each phase of the oil well: exploration, development and operation.
When you invest with EnergyFunders in the well exploration phase, you have the option to continue with the well through all the phases. Most of our current projects are in the exploration phase.
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. Diversify your risk by making smaller investments over more exploration wells until you establish several opportunities to develop wells.
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.
In this phase, 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.