Myths Involved in Oil and Gas Investment- Let’s Understand the Truth

Investing in oil and gas is not just an overnight decision. Since you're going to invest in a lot of money, you must understand each possible aspect related to such investment. Besides, there have also been the cases of investment frauds reported earlier and investors had to bear huge loss. So with all these circumstances, potential investors do find it pretty difficult to investing in oil and gas companies. 

 

As a result, there have been some prevalent myths woven by many potential investors. So let's check them over and analyze the truth in order to help them make an informed decision.

• You might lose all your money.

Truth: It's up to you how you look at your money. In fact, the oil investment is quite different from what you do in the stock market or buy real estate i.e. about investing with “post” tax dollars. Whereas when you invest in oil wells, you'll be given referential treatment from the government in the form of intangible and tangible allowances. Moreover 75 % to 100% of your investment can be written off against your personal income for the respective year. So when you invest in oil and gas well, you're using your money as well as some of government's money.

• Buying stocks of reputed oil company can yield lots of profits than directly investing in an oil and gas.

Truth: When you buy stock from the stock broker, it takes a lot of movements to get substantial benefits in the market. Alongside, you're buying the stock with “post” tax dollars which means you're just getting to invest 60% to 70% of the income. But when you invest in oil and gas well through direct participation, then your investment is largely focused on the oil production and not on the running of the whole company. Besides, your investment will stand a chance to grow larger and faster as per the production outcomes.

• Almost all the oil wells are dry. Only 1 out of 10 well is successful.

Truth: Well, this doesn't happen always. Whether it's “Wildcatting” or developmental drilling, you stand a chance to getting oil rich wells. After all, perfect research with the help of geologists will do the rest!

• You find it a scam if you’re offered an opportunity to invest in oil and gas well.

Truth: Doing good research work is always the best way to ascertain any better investment opportunity. On the contrary to this, most of the people prefer to buying stocks because they're not interested in carrying out the research. But if you're thinking of investing in drilling programs, then firstly you should understand oil and gas industry trends and then do the research work to check out all about the respective company. However, a real drilling company will surely explain you the risk involved. They will also explain you the views of the geologists about particular wells. Moreover they seriously welcome all the queries to help you make wise investment decision. 

 

• The only reason I'm investing in oil and gas because they say it'll be a productive well.

Truth: In fact, nobody knows how much oil will particular well be producing? However when the projects are based on developmental drilling, chances are there to estimate possible range of oil. And because of such uncertainty of the wells, oil operators surely explain the risk involved. 

 

• Drilling wells are risky and holds many liabilities and I don't want to be a part of any liabilities.

Truth: When you buy stocks, you're only liable for the amount you invested. By the time, if the company you invested goes down, you're not affected by any factors other than your investment returns. The same is the case while investing in oil wells where you get an operating agreement stating you're not responsible for any actions.

• Oil wells don't have longer life span

Truth: Oil wells possess longer life span. Over the times, you extract as much oil as you can but gradually with the pressure released beneath, these wells will almost keep on producing to some extent for over many years. 

 

• If I invest in oil wells, then I won't be able to sell out my interest.

Truth: Bear in mind that an interest in oil wells is sellable as it's based on cash flow. If you own an oil interest for longer times then it becomes pretty easy to sell because it's proven cash flow record similar to stock in a company.

Thus, don’t just go by all these myths but understand the fact in order to make wise investment in oil and gas industries.