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A Short Introduction To Opportunities In Oil And Gas Investment

By Stacey Burt


As oil and gas became the main source of energy, especially during the mid-2000's, oil and gas prices increased proportionately. Oil and gas investment became the most lucrative investment opportunities due to energy demands estimated to be 86-87 million barrels a day according to the Organization of Petroleum Exporting Countries' 2008 figures.

An investor looking for tax exempt direct exposure to the industry should consider an oil and gas unit investment trust. This would involve investing in either the production or the purchase of exploratory drilling assets and machineries. This usually provides a pass through treatment from petroleum investments and incomes. Mutual funds and future contracts are the most common investments in the oil industry.

The oil and gas industry offers a number of investment opportunities with investment in shares available at any time. It is safe to say that any investor has an opportunity waiting for them. For example, an investor can have an investment in oil drilling, as well as in the company's future contracts. Cautionary measures should always be taken like all other investment opportunities where investors need to carefully research all risks.

Oil and gas are what mostly moves the world as sources of energy. Petroleum, for examples, has numerous uses as it can be used as either a lubricant or in plastics manufacture. This makes the industry to be of great importance in driving world economy.

Exploration opportunities involve companies leasing or buying land and prospect to make money through drilling. This is a risky investment as striking oil is not a guarantee. Income opportunities involve the acquisition of land or plots near proven energy reserves. Energy investments require certain services and support services, hence some opportunities come up such as transportation services; pipeline companies for the transportation of the drilled oil; other companies include the shipping and logistics companies manufacturers of equipment ;refiners; and rigging companies.

Historically the oil industry has played the role of a diversifier in the economy as when oil and gas prices rose, the economy would generally be slow. Investors in the energy industry are cautioned of this trend. Also, large profits are realized which can even amount to 10 times the initial capital invested. The sector also enjoys many tax advantages as most tax is invisible to a shareholder who buys shares from a public traded stock.

In the event that the drilling does not strike oil or gas, huge losses can be realized due to the volatility of the industry and this is where diversification comes in. Shares especially of smaller companies are hard to liquidate and one has to redeem interest with your company or other limited partner which is usually direct. Higher commissions are also paid to brokers which can sometimes exceed 20%.

Another risk includes people risk. The professional ability of the explorer cannot be underestimated as the experience of the operator plays a key role in profit realization. There are mechanical risks, as the actual oil and gas exploration involve a lot of activities hence all the mechanical questions must be answered prior to the actual drilling. The reserve risk takes into consideration the well control and the seismic evaluation of the well. Finally, the commodity price risk must be catered for.




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