Get The Best Returns Out Of Oil And Gas Investments

By Olive Pate


An investment is a venture that investors undertake and expect returns in the near future. Some prefer long term ventures while others prefer short term ventures. Long term ventures are undertaken by people who want returns in the long run, they are more interested in growth and expansion of their businesses than making quick returns on their initial money. For short term ventures, investors here are not willing to undertake projects that will last for more than a year without making any returns on their initial outlay. They concentrate on projects which will give them return on their money within the shortest time possible. Oil and gas investments can serve both the long term and short term investor.

Currently among the riches people in the world accumulated their wealth from energy related projects. These projects can be classified into long term projects or short term projects. Most businesses have long term goals and short term goals too.

The other technique is internal rate of return, it evaluates how much return an investor will get from a certain project, and the choosing criteria is an investor chooses a project with high internal rate of return. If someone wants to take up the gas and oil venture they should first study the market wisely and identify markets trends so that they can make wise decisions on when to invest.

Another technique is payback period. Those investors who use this method consider the number of years it will take for them to recover the amount they invested. Decision criterion here is choosing a venture with short time period. This means that the project with big returns in initial years will definitely have short period.

The other technique to evaluate project viability is by use of internal rate of return. This method is easier to use and calculate and is also accurate given accurate information. Before undertaking such big venture, an investor should first carry out a study on the market trend, determine whether buying shares in an oil and gas company is the most profitable decision or participating directly in the drilling and refining process.

Direct participation may be lucrative due to heavy capital required. They should take caution not to drill in areas not tested and approved to have oil reserves else they risk undertaking a venture which will result to huge losses. There are risks involved in this venture, and one of them includes mechanical risk. The risks here range from human injuries as the drilling process involves a lot of mechanization to delays due to mechanical failures.

This venture requires high technical analysis, economical, mechanical, geological and engineered analysis making it very expensive for common investors. There are few risk involved in this business and the first on is risk from people. These are the people who are handling the project such as the well operator, market brokers and others who may be involved. Their professional ability will greatly be required otherwise you may get advice from incompetent people and end up regretting later.

In limited partnership, gas or oil firms will offer their partnership units to the public at a fee and use the proceeds to drill wells and lease properties. In return they get to manage these projects. The sponsor firm takes fifteen to sixteen percentage of investment costs and eventually also get their share of profit in the same percentage. This is like a gamble and the risk one. They are highly speculative and very illiquid ventures.




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