It is no coincidence that dozens of fortune 500 companies and tens of world’s richest people, typically billionaires, have something to do with oil and gas industry; this includes ownership of rights in the form of stocks or even a large chunk of actual ownership. No wonder then this sector is called the gold mine by many experts. The list of investors in this sector includes financial institutions, insurance companies, governments and high net worth individuals.
So what are oil and gas companies and why do they look so promising to all the above mentioned entities? Mentioned below are some of the reasons.
1. Extremely high returns and that too consistently over a long timeline. How is that possible? The reason is because oil companies produce and trade in valuable commodities such as crude oil, natural gas and petroleum.
2. Governments generally lease oil and gas companies large chunks of land or off shore properties for oil exploration which is a highly lucrative in terms of financial gains. Secondly, once the oil is extracted from these places, and if the fields are shallow and not dug too deep, the said area is redeveloped offering a double bonanza for these companies. This in turn means unexpected profits which are not related to the core business at all.
3. Yet another reason this sector looks lucrative is because of the “surprise” element; discovery of huge oil reserves. It typically means unexpected and extra financial gains which runs into millions of dollars. Such monies are disbursed as bonus or dividends amongst the investors.
How does one invest in this sector? Secondly, is the investment opportunity available only to large financial entities?
The fact is anyone can invest in oil and gas companies. However, choosing the right one is crucial. Before investing in any oil or gas enterprise a prudent course of action is to consult with the oil gas investing experts like oil scams which make sure you as an investor, whether small or big does not fall into the bottomless well of deceit and false promises.
Oil scams are not new and will continue to flourish. Mentioned below are 10 tips on making investments with oil and gas companies.
1. Risk Factor:
Investment is typically associated with risk. Before investing, especially in this sector make sure to ascertain geological and engineering implications. This will help you make informed decision. The mantra here is; better safe than sorry.
2. Choose Appropriate Region:
Select a region which looks optimistic from short as well as long term prospective. Emerging markets such as China have better short term advantage whereas United States, Canada and other developed entities are the choice of investors who look for moderate to high long term gains.
3. Choose the Correct Sub-category:
Oil and gas sector is further divided into several ancillary and affiliated sub-sectors such as equipment leasing, infrastructure support, erection and maintenance, oil exploration, oil production and enterprises dealing in oil and gas stocks. Select the right genre.
4. Demand and Supply:
As an investor you need to keep patience. The oil prices may fluctuate but remember this is a diminishing resource which means even if the prices of crude oil and gas dip, it will rebound. This typically depends on demand and supply principle. Higher demand fetches better price.
You also need to take a close look at the taxation laws of the host country or that region/state. Many governments allow FDI which means foreign companies can bid for oil exploration projects. While this may sound good, remember, the government may also levy certain restrictions or taxes which can be detrimental to the profits or company’s growth. Consider these metrics and read the prospectus carefully. This is typically called as “Offer Letter”.
This factor more often than not leads to losses. Speculators and speculations form an integral part of any investment system, especially stocks and futures market. Understanding the underlying risks and inherent shortcomings of futures trade before investing is extremely vital. However, it does not mean you cannot invest in futures trading.
7. Seek Professional Tips and Help:
Take help from the above mentioned (oil gas investing experts) companies who help you invest in financially and morally sound oil and gas companies.
Scams and scammers are rampant in this industry. Thecwcgroup.com and energyandcapital.com are two such entities who through its knowledge and experience make sure you do not invest in bogus enterprises. They do preliminary checks, analyze the claims made by the oil company and make sure that all these claims are authentic, weeding out the shenanigans. Here are some of the salient features of these companies.
a. They offer safe oil & gas investment opportunities.
b. Initiate credibility checks and other verifications.
c. Analyze crucial engineering data of the oil wells/bid areas of the oil company.
d. Run general and complex risk appraisals to make sure the oil company has a really sound financial proposal.
e. These anti-scam companies verify the credentials and affiliations of the oil companies looking out for investors.
f. They also look into the financial functioning of the said oil company; giving green signal to those who maintain a healthy net revenue interest to working interest ratio.
8. The Source of Offer:
If the offer to invest in an oil company comes through a private broker or a trader, simply ignore it. Such propositions are typically crooked in nature. The proposal would be based on non-existent oil bids, manipulated lease papers and incorrect financial data.
9. A Step Further :
Check out the prospectus of this company. Analyze its refining capacity and its core area of expertise. The political stability of the area from where this company intends to operate is of prime importance. Make sure you verify this using internet or other reference material.
10. The Corpus Bifurcation :
How will the money generated through offer letter be utilized. The rule of thumb is that the major chunk goes into bidding/buying oil reservoirs, machinery and manpower. If the said company intends to use the corpus for personal gains or as a hedge against its previous loans then simply avoid investing in it.
How do you invest in oil companies?
The investment is generally initiated through stocks, bonds or via futures trading. All the said avenues require a trading account which is linked to your savings account or you can simply have a brokerage account to buy/sell oil stocks.