Oil Investing- Lowest Risk Investing With Tremendous Reward

oil investingExpansion of a financial portfolio allows the investor to manage his or her risk more effectively. When cash is properly managed, the upside is that the investor attains more in the way of attaining greater earnings. One area worth considering is becoming knowledgeable about how to invest in oil.

There are many avenues an investor may consider in order to invest in oil and gas. The emphasis of investment within the article includes various investment vehicles, how to invest in oil leases and developmental wells. Knowing the potential that private oil companies provide in way of investment is particularly useful for the smart investor. The first portion of the article addresses making use of different financial vehicles in order to invest in oil and gas.

Various Financial Vehicles Used In Oil And Gas Investing

Investors are encouraged to make use of exchange traded funds also known as ETFs and mutual funds as a means to invest in gas and oil  and greatly minimize risk. Naturally, investing using an ETF or Mutual Fund is not the same as placing an investment with private oil companies. Another way to invest in oil and gas is by way of a Unit Investment Trust. The UIT is given special attention below.

The UIT

Investing in a UIT is similar to investing in real estate or the stock market. Units are sold in the form of various trusts. The trusts are representative of purchases made with regard to a variety of individual oil and gas properties. Properties are held within the associated trust. The trust has a maturity date in place. The trust will either make a gain or suffer a loss. The gain or loss is pertinent to the sale of assets made by investors.

Wells Of Private Oil Companies

Wells represent another means of investment. A well is one way an investor can invigorate or re-energize his or her current financial portfolio. The strategy employed is to find a company with an impressive track record with respect to developmental wells. A developmental well many times can prove as a very sound investment.

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The way to find a good company that works in the field of developmental wells is to investigate its background. Check the amount of time the company has been in operation. Find out what types of technology the prospective company uses in in order to locate and subsequently drill for oil. A development well can be a risk. The well, however, on the upside, provides any investor with a significant return if the area where the drilling is taking place strikes oil.

As it pertains to investment by means of developmental wells, such wells are safer than wildcats. However, any place where drilling takes place can end up dry. However, if oil is struck then the return on investment is tremendous. If the investor wishes to attempt the developmental well approach it is probably to his or her best interest to spread the investment among two or three developmental wells–in order to minimize risk.

Another Avenue Which To Invest Is The Oil Lease

A commercial lease is attained from the mineral owner (lessor) prior to drilling. A landman determines who owns the mineral rights. The determination can be made at the courthouse. He or she approaches the Owner of the Mineral Rights  with an oil lease.

The oil lease is considered a legal document. The mineral owner signs the Lease in order to receive a royalty. Naturally to invest in a lease represents much in the way of profitability. An oil lease with a time limitation is said to have a primary term. If commercial production has not been established prior to expiration of the primary term, then the lease becomes invalid.

However, if production has been established, the life of the lease covers future production. Oil leases are considered forms of property which can be purchased sold or traded. The lease plat is a document which is included with a proposal to drill. The lease plat makes it possible to identify the area or acreage where drilling of the well takes place.

Conclusion

Investors wishing to attain the least risk are wise to use one of the financial vehicles mentioned at the beginning of the article. Persons involved in the actual process are at the greatest risk; however, have the greatest amount of upside potential.

Invest In Oil and Be Ahead of the Game

oil1It should come as no surprise that investment oil is one of the most lucrative financial opportunities around. Seasoned and beginner investors alike are always on the hunt for growing investment prospects that they can pounce on; preferably the kind of investments that will continue to show significant growth over the next few years. Oil investment companies, it would seem, are growing exponentially in terms of their success rate. Having a finger in this particular pie is certainly worth it.

The Major Tax Benefits of Oil Gas Investing

Intangible Drilling Costs (IDC) are probably the most advantageous aspect of investing in American gas and oil companies. Essentially, for every dollar of the investment amount that is spent on IDC, investors will receive back the same amount in their tax break at the end of the year.

On average, around 85% of the investment is made up of IDC.So on an investment of $100 000, investors will gain back $85 000 in taxes. It does not take a mathematical genius to figure out the positive news in that equation.

Other Reasons to Consider Oil Investments

Lease costs and completion costs are additional tax benefits that not everyone may be aware of. The costs of equipment leases, mineral rights, and similar administration costs are fully deductible at the end of the tax year. Similarly, completion costs of up to $17 000 are also fully deductible, provided that the correct paperwork is completed within the given time frame.

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In addition to this, opportunities in the growing local market are bound to increase as well. More job openings indicate even more exciting growth within the industry itself. As always, an increase in job opportunities marks an equal increase in viable investment opportunities.

American Independence on Foreign Oil

Recent predictions by the federal government indicate that the expected rise in American oil production over the next few years will be impressive. By 2016, there should be about 9.5 million barrels turned out per day. This significant hike is great news for anyone hoping to invest in American oil companies. Naturally, the more a particular company grows, the happier stock holders will be.

The time to invest is now, simply because these companies will grow from strength to strength until around 2020. With a lucrative investment period that will stretch from now until then, this is an unmistakable opportunity to build up a veritable nest egg.

Why Everyone Should Consider Oil Investments

Whether you have been investing in stocks, bonds or mutual funds, you have probably experienced some level of success. You are likely also familiar with the volatility of the market and understand that you can experience a 30% profit loss and gain all in the same day. If you’ve been trading for some time, oil investments may be a good next step.

Investment Oil Facts

Like most consumer products, oil prices fluctuate according to supply and demand. It may sound simple, but there are many complex factors in play, including emerging markets and daily production. For example, Nigeria is considered an emerging market, but due to rebel forces and attacks, they were only producing 1.5 million barrels per day, as opposed to the 2.5 million they should have been producing. With demand going up worldwide, this caused oil prices to rise exponentially. That is good news for oil investment companies and individual investors, who have much to gain.

Invest Oil Options

If you are a beginning investor, then consider buying stocks of oil and gas service companies as well as drilling companies. There are several mutual funds available that invest in oil and energy companies as well. If you are an experienced trader and want a more direct approach to investment oil, consider an ETF (Exchange Traded Fund) or ETN (Exchange Traded Note). These normally invest in futures contracts, rather than energy based companies. There are many choices for investors, and it’s advisable to do some research before choosing one stock or one single company.

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Diversify Your Portfolio

Oil gas investing is an ideal way to hedge your portfolio, and diversify your stocks, bonds and mutual funds. Oil prices are not influenced by the U.S. dollar and stock market returns; so these can make a great addition to your overall investments. The demand for oil and gas is not going to go down, regardless of how many hybrid vehicles are built in the next 50 years. There are many emerging markets that have an increased demand and an increased production quota; consequently, there has never been a better time to invest in oil.

If you have a financial advisor, ask for some guidance and recommendations on which companies to specifically invest in. If you are a self-guided investor, conduct your own research and find out which companies have been giving the greatest returns, and which ones are headed for the greatest gains.