We’ve been talking to oil and gas professionals about their preferred oil and gas investments.
Spoiler Alert: They like to invest in oil wells directly.
While there are lots of ways to invest in oil and gas, the professionals we’ve spoken to all like to invest in oil wells, as directly as they can.
Here’s some of the top benefits of investing directly in oil wells, as opposed to oil stocks, mutual funds or futures.
1. Control of Investments
When you invest in publicly traded oil and gas companies, you can be exposed to risky corporate decisions that have nothing to do with the quality of the asset.
For example, many companies rapidly expanded using debt to purchase oil and gas assets that were strong. However, they had financial hardships when prices fell and financial projections didn’t match up with requirements to repay their debts. Those companies’ stock value plummeted despite all the hard work they spent doing due diligence on the assets involved.
When you invest directly in oil wells at costs that make sense in a range of price environments, you immunize yourself from risks that originate at the boardroom, not at the well head. You can select exactly which projects make sense to you and at which investment amounts.
2. Ability to Evaluate Risk
Publicly traded companies are diversified to the hilt. While we’ve always favored diversification, the asset diversity in publicly traded companies makes it difficult to evaluate risk.
You may be an expert in the Permian basin but have no idea about the geopolitical ramifications of an investment with Russia, Venezuela or Argentina, countries that don’t exactly have a great track record of protecting the foreign investors’ property rights. Or, you might have expertise in the geology of a drilling project but not the financial or legal structure.
When you invest in an oil well, you can evaluate the risks of that project. You’re betting on one drilling project going well, not an entire corporate vision.
3. Data-driven Investments
This brings us to data. When you’re betting on a project going well, you want to know the underlying data. If you have a financial background, you might want to evaluate the deal structure, or if you’re a lawyer, you might want to review the leasing and other legal agreements. If you have an engineering background, you might want to evaluate seismic logs, well placement in relation to other producing wells, or production techniques.
What we learned speaking to oil and gas professionals is that the more macro-level the investment, the less comfortable they felt. When evaluating a publicly traded oil and gas company, the geology, the seismic logs and technology aren’t readily available from Wall Street. Financiers write about the oil well investments, not engineers.
Here’s the problem with Wall Street from the perspective of the technical experts in oil and gas:
The data just isn’t there.
To pour over.
To argue about.
Think about it this way: Would you rather invest in a Wall Street fund that buys house mortgages? Or, would you rather invest in individual houses?
If you chose the second version, you probably made money on real estate in the 2000s despite the 2008 crash.
Basically, investing in Wall Street-created avenues is great for Wall Street. For you, not always.
4. Tax Advantages
A unique advantage of investing in oil and gas, over other industries, is the federal tax deductions. Oil and gas tax benefits include intangible drilling cost, tangible drilling cost and depletion. You can write off up to 80 percent of your investment the first year, and the tax benefits continue throughout the well of the well.
Finally, to invest in crude oil, you need transparency. You need to be able to evaluate need deal structures, AFE costs, financial data and geological information.
When deals lack transparency at industry conferences, you might want to walk. Eventually, this will likely influence what projects receive investments as more investors demand transparency about deals.
Invest Directly in Oil Wells in One Easy Platform
Our goal at EnergyFunders is to bring technical experts further into the fold and integrate them as never before. The world is getting smaller and more connected. Direct oil well investments are becoming more available, and they’re getting the transparency they deserve by dedicated professionals who are experts in their fields.
We know it’s nearly impossible to be an expert in every aspect of oil well investments from the deal structure to the leasing arrangement. That’s why we have a team of professionals including landmen, lawyers and engineers to make sure the investments on our platform meet our vetting standards. Then, you can review all the legal, engineering and land information on our platform to see if it meets your requirements.
You can take control of your investments and the tax advantages when you invest directly in oil wells. We make it easy with our free sign-up.