It is no coincidence that some of the wealthiest individuals in the world have made their riches in Oil. Oil is a commodity that everyone uses and is essential to the daily lives of millions of Americans.
Traditionally, oil investments are structured to where only high net worth individuals are considered savvy enough to enough to make such investments. The U.S. government has imposed certain restrictions on investors who do not meet minimum net worth or annual income requirements to participate in certain oil and gas investment vehicles and limit oil and gas investment opportunities to what they believe are considered “sophisticated investors”.
In the oil and gas industry, there are many ways to “invest” in oil and gas. Some various types of oil and gas investments are:
- Stocks in Oil Companies
- Working Interest in Oil & Gas Drilling Projects
- Lease and Well Royalty Interest
- Royalty Trusts
- Oil & Gas Mineral Ownership
- Oil & Gas Prospects
- Oil & Gas Leasing
While there are a number of ways to invest in oil and gas, some are considered direct investments, while others may be considered indirect investments. There are both pros and cons to any oil and gas investment which should be considered.
Savvy investors are turning to oil for a number of reasons which may include monthly revenue from producing wells, tax benefits, long term asset acquisition, security from market fluctuations as well as for residual income.
With such significant tax incentives such as write offs for intangible drilling costs and other capitalized expenditures, oil and gas has the potential to offset huge tax burdens for passive investors. Tax benefits with oil and gas extend beyond the initial drilling and can include an amount allocated for depletion allowance as well as other strategic tax incentives. Oil exploration and development is essential to both the American and world economies and typically involve a significant level of risk which should be considered before making any investment in the oil and gas industry.
Most investors seem to be concerned primarily with these main points:
- What is the investment amount
- What is the risk
- What are the projected returns
- How long will it take to get those returns.
With oil and gas, there are a number of ways to answer these questions and each investment type will vary depending on the particular strategy. It is best for anyone considering any type of investment to consult with trusted advisors and only make the investment once you are completely confident in the leaders involved an addition to the merits of the project.