Participating in the oil and gas industry may be intimidating to new investors. It’s helpful to learn a bit about terms and concepts so the research process is less confusing. Here are a few things to know if you’re thinking working with oil and gas investment companies.
Industry Terminology
Oil and gas companies are often split up into two categories: exploration and production (finding and refining the products) and drilling and service (building and running the equipment). Oil production is defined in terms of barrels (often abbreviated as “bbls”) per day and gas production is measured in standard cubic feet. Gas can also be referred to by barrels of oil equivalent (BOE).
Risk Level
Different phases of investment have different risks attached. The riskiest stage is drilling and testing; however, this initial phase may yield the highest return. A completed well, one that has been tested and declared viable, is less risky but has a lower return. Oil and gas investment companies may only allow accredited investors (someone who has a particular income or net worth) to invest in certain ventures.
Smaller companies may use crowdfunding to raise money. Investors get a chance to directly finance a drilling site. This type of investment may interest those who have smaller amounts of capital to contribute but who want to get involved in the oil and gas industry.
Account Type
A cash account is a simple brokerage account where an investor deposits money in order to buy stocks, bonds, futures, etc. Some oil and gas investment companies may also let customers use a Roth IRA account where they contribute post-taxed money and withdraw it later tax-free. Another possible option is an education savings account (ESA) where investors can save money for their children or grandchildren to use for college.
Investing in oil and gas may broaden your financial options. As with any investment, take the time to do your research to find an opportunity that fits you and your budget.
