Guide to Investment Options in Oil and Gas Industry

Energy is a prerequisite for sustenance of life. The rising population of the world has led to high demand of energy worldwide. Consequently, the Governments across the whole world are passing through severe challenges for gas and oil production to meet the demand in their regions. Above all, this industry is extremely being transformed because of its valuable place in the world economy. Since it has become hugely popular among investors, they possibly run the risks to benefit from such a huge energy market. Ultimately, it has also become an interesting topic for analysis and research for the economists across the world.

So if you’re thinking of investing in this sector, you should have some ideas about the investment options available for you. However, there are many ways to invest in the petroleum industry, from retail investments to drilling projects for sophisticated investors.

Let’s have a look through these investment options so that you can make an informed decision:

1. Stocks in oil companies: It’s quite easy investment in stocks. Simply head to your broker and invest in the shares of the respective oil company. And depending upon the normal growth rate, choose a good option with the help of a good research work. Moreover since this investment probably subjects to risk, you just don’t want to make everything hastily.

2. Working Interest Partner in a Drilling Program: This investment as a working interest partner in several oil wells projects cash flow and tax benefits. However, there is a risk involved in such programs. But make sure that you’ve got enough cash to invest in various drilling programs. In addition to the income potential, oil investments offer extensive tax advantages (tangible intangible and percentage depletion allowance), and thus, the Government of U.S has set out to promote domestic drilling. Ever since the Tax Reform Act of 1986, these drilling programs in oil and gas are termed out as some of the best investments that may help investors to shelter income, making it a better tax advanced investment nowadays.

3. Existing working interest in a lease: Purchasing a working interest in an oil or gas lease is quite riskier than a drilling project. In this case, the potential for large unforeseen expenditure is reduced to a great extent. On the other side, the well’s production generally stays stable and the cash flow stream of the production is simple to evaluate. The ultimate benefit of buying a working interest is that it offers a superior return but as a drawback you still run the risk of lawsuits and regulatory compliance on the site accident. Alongside these, the biggest problem is the technical knowledge of the wells, decline curve analysis and several other technical knowhow.

4. Stock in royalty trusts: Buying stocks in any royalty firms is quite different that buying shares in an oil company. Royalty trusts are designed with large assets of royalty and prevailing interest. Moreover it’s trouble-free to find such investments as they’re available on the NYSE.

Oil and gas royalties direct from mineral owners: It has many benefits such as the returns can be higher at 12-50%, and buying royalties is like buying the minerals. And fortunately, if another oil zone is found out, then you’ll be enabled to avail another royalty cash flow stream. On the other side, you need to thoroughly understand ways to buy mineral rights. Then the other concern is to look for private owners who want to sell out. On the whole, due to higher returns and less risk, this has become one of the preferred investments in the oil industry.

So think over at your investment needs and opt for the investments that are ideal for you.