oil investing

oil investment opportunities

The Different Types Of Oil Investments You Can Make

oil investing

The oil industry has many ups and down, but when you strike right, you can make a lot of money. This is why many people look at investing in oil. If you are one of these people, it is important that you know about the different types of oil investments that you can make along with the risks that are involved. There are no risk-free ventures when it comes to oil because the oil market is volatile and could turn at any time.

Buy Stocks In An Oil Company

investing in oil stocks

One of the easiest ways to invest in oil will be to buy stocks in an oil company. This is something that any investor will be able to do because these stocks are publicly traded. This investment option also offers high liquidity because of the active stock market and the active industry you are looking at.

The return on your investment will come in the form of dividends which are paid to you by the company. This will generally be a low dividend yield when compared to some other stocks and will range of 3% to 6% with a nominal growth rate. However, it is important to note that these stocks are not without risk and this will generally be a disaster risk.

Should there be a disaster with the company such as oil spills, the stock price and the dividend value will fall. Of course, with this investment option, all you will have to do is buy the stock and wait to get your return. You will also generally be able to weather any disaster by simply holding onto the stocks.

A Working Interest Partnership

Another way that you could invest in oil is by becoming a working interest partner is a drilling program. When you do this, you will go into partnership with a company that has a group of oil wells. These companies will generally be starting up and will not be making a profit off the oil wells yet.

This is a very risky investment option because you could lose your entire investment or you could strike it rich. As with all highly risky ventures, the rewards could be worth the risk, but only if you have the capacity to handle this. There are many people who do not view this type of investment as an investment at all and more of a gamble and you need to consider this.

If you do partner correctly, you could see a return on your investment of 8% to 12%. This could be a large amount of money if the oil wells hit a large reserve. However, the overall cost of this investment means that it is generally not ideal for the individual and mostly seen as an option for billion dollar companies. There is also no active trading market so you need to be in the oil industry to find this investment opportunity.

Working Interest In A Lease

If you are interested in investing in a company that is already producing oil but want something other than stocks, you can look at a working interest in a lease. This is similar to a working interest partnership, but will come with slightly less risk. The reason for this is the fact that you will be partnering with a producing oil well.

The production of the well will generally stay constant and this means that the cash flow will be easier to evaluate for your investment. The returns on your investment are also better and you could see a 10% to 20% return. Of course, this does not mean that there are no risks when it comes to this investment.

The primary drawback of this investment will be the risk of regulatory compliance. There is also a chance of lawsuits when there are accidents on the drilling site. You should also have some technical knowledge of the oil and gas industry to ensure that you understand your investment and how the company is performing.

Stocks In Royalty Trusts

Buying stocks in a royalty trust is different from buying stocks in the oil company. Royalty trusts are large assets that work on overriding interests and royalties which means that they do not have any business operations. The trust will not run an oil company and will only receive cash flow from the royalties they have purchased from the oil company.

The primary benefit of buying these stocks is the fact that you do not have any of the legal or political risks of the oil company. They also give a fairly decent return on your investment of between 7% and 9% over time. You will also have to do very little with this investment as you simply need to purchase the stocks. This is easily done because they are traded on a highly liquid market and many find these stocks to be superior to stocks in oil companies.

Buying Royalties From The Oil Owner

If you want to bypass the royalty trust, you could look at buying royalties directly from a private owner. This is not an investment option that everyone should look into because you need to understand how to buy mineral rights. You will also need to be in the oil industry or you will have a hard time finding private owners that are willing to sell.

Another serious issue that you might have with this option is the fact that it requires active participation. If you want an oil investment that you can leave once you have invested, this is not the right option for you. Of course, it is important to note that there are many benefits to this investment as well.

The primary benefit is the fact that the return on your investment can be very high. It is estimated that you could make a return of 12% to 50%. When you buy the royalties, you will also be buying the mineral which means that if another oil zone is discovered you will be entitled to another royalty cash flow.

While researching this article, we came across a very interesting website from Clarke Energy Fund Management http://www.cefmoilandgasinvestments.com/ who provide some very interesting information on oil investment opportunities. On their website they explain how rather than investing through the traditional method of one well at a time, they actually spread your capital investment across nine wells, thereby diversifying the risk. Certainly an intriguing approach.

Just like any investment opportunity, you should carry out your due diligence and research the investment before putting your money into it, but it certainly is fair to say, oil investing is not going away anytime soon.

investing in oil

Should You Invest In Oil in 2018? What Are The Risks?


Should You Invest in Oil?

Information On How The Correct Crude Oil investment Can Increase Your Personal Wealthinvesting in oil

Should you invest in oil? What are the options for investing in crude oil wells? Not so long ago these questions were not asked, it was a given that oil investment was the thing to do! The price of oil hit its all-time high of $151.72 a barrel in June 2008, even two years ago in may 2014 the price was relatively high at $103.09 a barrel. Today (24th May 2016) the price is at a low of $48.50 a barrel. Although a long way from that aforementioned high, it certainly is nowhere near the low of 1948 of $15.16 a barrel. (image below is Crude Oil Prices – 70 Year Historical Chart). So what is the answer to the initial question now?  Should you invest in oil?Historic oil prices

Well first off, I’m not a financial advisor anymore and this website is not about giving advice, it’s about giving the best and unbiased information I can to help you come to your own decision. With any investment, you should always seek the professional advice of an advisor, especially if you have never invested before. so I’m just going to give you all the information I can and you can take it from there.

When it comes to investing, the standard call is ‘buy low, sell high’ and oil is at a low price right now, but just because it is low, doesn’t mean you should buy. Why not? Well because it may be low today, but will it remain low tomorrow and the next day and the next…? When investing in oil, precious metals, art, property, stocks, whatever it is, going in at a low price is not always going to guarantee a return. ‘Now you may say, Yes but if I stay in it for the long haul, surely prices will increase?’ Maybe, but there is no guarantee that will happen. This is why when it comes to particularly oil investment you got to consider two things:

  • The history of the market
  • The demand for the product

The History of The Oil Prices

Looking at the chart above you can see that in 1973 the price of oil started going up from £19.05 a barrel, to hitting its peak in April 1980 of $116.52 a barrel. From 1980, it then started to slowly decline until it the low of $16.44 in November 1998 (not far off the price in 1948 I mentioned earlier). Then it began to rise again, reaching its highest peak yet, in 2008, and since then it has been on the decline again. So if you were lucky enough to buy into oil in 1973 and waited seven years to sell in 1980 you would have got a good return. Or if you bought in November 98 and waited 10 years to sell in 2008, you would have had a good return then also.  The history of any investment type can only tell us how it performed in the past, it cannot tell us how it will perform in the future. Of course, people predict how well an investment may perform in the future all the time. Take for example this prediction by Dan Dicker, a 25 year veteran of the New York Mercantile Exchange where he traded crude oil and natural gas,  who predicts that oil will reach the price of $120 a barrel by the end of 2017. He gives a very full and detailed explanation as to why he feels oil will hit similar prices as of 2008, but it doesn’t mean he is right. A simple Google search on oil price predictions will show you that the general consensus is more conservative view. Longforecast.com predicts that oil will reach a barrel price of $80.60 in May 2018 then bouncing between $78 a barrel from June 2015 to $75 a barrel June 2020. Whether it is a conservative $78-80 a barrel or the highly optimistic $120 a barrel, the overall predicted view is that oil prices will increase over the next few years.

The Demand for Crude Oil

Crude oil and its demand cover a plethora of areas. Of course, it is used for the obvious such as gasoline and heating oil, in fact, according to the US Energy Information Administration, about 75% of the 6.79 billion barrels of petroleum used in the US in 2012 were used for gasoline, heating oil/diesel fuel, and jet fuel.

However, oil is not just used for fuel. Plastics, synthetic materials, and chemical products all derive from crude oil and it can be found in many common household items as outlined in the table below.

In addition to the demand for oil to be used as fuel and manufacturing, its demand is affected by the economic growth of a country.  If a country’s economy is growing, its growth is of course dictated by consumer demand. If consumers are spending, then growth occurs. If consumers reduce their expenditure then growth slows. This, of course, is only a basis of economics, there are additional factors, but the premise remains.  Right now developing countries like China and India do have a high demand for oil, Although India could be replacing China as the main player of global demand growth, nevertheless, as countries develop, demand increases. The price of oil, therefore, is dictated by supply and demand.

check out the different products made with crude oil.

Clothing Ink Heart Valves Crayons
Parachutes Telephones Antiseptics Deodorant
Pantyhose Rubbing Alcohol Carpets Hearing Aids
Motorcycle helmets Pillows Shoes Electrical tape
Safety glass Nylon rope Fertilizers Hair coloring
Toilet seats Candles Credit cards Aspirin
Golf balls Detergents Sunglasses Glue
Fishing rods Linoleum Soft contact lenses Trash bags
Hand lotion Shampoo Shaving cream Footballs
Paint brushes Balloons Fan belts Umbrellas
Luggage Antifreeze Tires Dishwashing liquids
Toothbrushes Toothpaste Combs Tents
Lipstick Tennis rackets House paint Guitar strings
Ammonia Eyeglasses Ice chests Life jackets
Cameras Artificial turf Artificial Limbs Bandages
Dentures Ballpoint pens Nail polish Caulking
Skis Fishing lures Perfumes Shoe polish
Antihistamines Cortisone Dyes Roofing

The Different Products Made With Crude Oil

What are The Different Ways To Invest In Oil?

Investing in oil can be done via a number of methods. Each method, of course, has its own level of risk and reward and varies from direct investment in oil and even oil wells to ownership in various energy-related investments.

One direct method of owning oil is through the purchase of oil futures or oil futures options. Futures are highly volatile and involve a high degree of risk. In addition, investing in futures may require you to do a lot of homework as well as invest a large amount of working capital.

Another direct method of owning oil is through the purchase of commodity-based oil exchange-traded funds (ETFs). ETFs trade on a stock exchange and can be purchased and sold in a manner similar to stocks.

Have You Ever Considered Investing Through A Private Placement Fund?

In addition, investors can gain indirect exposure to oil through a diversified private placement fund, which combines the safety of a blended portfolio with high-yield tax advantaged income. Private placement funds obtain the ownership interest in oil & gas wells for its partners. Revenue Streams from the production of oil, natural gas, and related products are then passed through to its partners in the form of Quarterly Dividend payments. Tax deductions generated by partnership activities are also passed through to the partners

The Benefits of Directly Investing in Oil Wells Through Private Placement Funds

Because it is difficult to predict the future of any investment, the biggest risk in oil direct investments is not being able to predict with certainty if a new oil well project will be a success. However, despite the lack of future predicted success, the US government gives generous tax benefits to encourage domestic energy exploration and development.

If you consider a private placement fund to provide direct oil investment, you will want to consider ensuring your investment is protected as best as possible. Investors know that diversification is a must when it comes to lowering the risk of loss, and direct oil investment is no different.

The traditional approach to investing in oil directly is to put the entire investment into a single oil well. The problem with that is around 50% of wells drilled are dry holes and only 1 in 10 producing wells are ever outstandingly productive, therefore the risk of losing your entire investment in any one well is over 50% and the chances of getting a good return on your investment is less than 5%.diversified oil investment chart

When we refer to the diversification of investment we mean not putting all your investment eggs in one basket. Don’t invest all your funds in stocks or property. A good investment portfolio will invest in energy, precious metal, stocks, property and the like, so that when one is performing badly, the others will prop it up.

So how does the concept of diversification work within a private placement fund and direct oil investment? By using a diversified private placement fund. This combines the safety of a blended portfolio with a high-yield, tax-advantaged income. By investing in multiple well projects progressively the “dry-hole” risk is spread across the entire well portfolio, significantly reducing the risk to the individual investor with the investment capital spread over dozens of projects. About 4 wells drilled are dry-holes, meaning around 6 of 10 are oil-producing wells. About 2 of the oil-producing wells will be extremely profitable, which means that the risk of losing entire investment over all wells becomes negligible. On top of that, a good quality fund will provide quarterly income dividends, based on the entire well portfolio. Check out our post – oil investment opportunities – and the comment we make at the end concerning Clarke Energy Fund Management (CEFM) who carry out this very thing, or you can visit their website directly at http://www.cefmoilandgasinvestments.com/