The Pros And Cons Of Investing In Oil

By Anthony Parker


While most investments are dangerous, there are some which can often be detrimental to financial well being. One of these is when investing in oil. For, unless an individual has a clear understanding of the industry and how companies operate, it can often be easy to lose everything in a short amount of time.

As with the stock market, values change over time. As a result, owners and investors in this area can often lose money. In addition, depending how much ownership one has in a particular interest, one can also be left having to pay invoices rather than receiving checks. So while it can be profitable for large oil and gas companies, it is not always the case for individual investors.

Whether owning royalty or working interests, there are always going to be costs related to investing in this area. In most cases, individuals receive dividends throughout the year either on a monthly, bi-annual or annual basis. Although, if a well dries up, is sold or ceases to operate, then these dividends go away. After which, unless there is a new owner whom takes over the operation, the well can often sit stagnant or years.

Investors working with an accounting firm, a big bank or investment firm, need to have a clear understanding with regards to various accounting and service fees. It should be noted that these fees are separate and apart from any operating costs which may be tied to an investment. As such, it is also important to recognize when an operation is costing more than the profits an investor is receiving.

As a result, if one is going to invest in this area, it can often be better to go through a private investment firm rather than a large bank. For, there have been times when trust departments at big bands have sold other holdings in order to pay fess which a client may owe on the account. As with other investments, if the monies are not paid, then the holdings are often acquired by company.

Many individuals think investing in the industry will result in a get rich quick scheme. In fact, the industry is one in which it can be very difficult to see a profit due to all the overhead and operating costs associated with a well. As such, it is important to learn all aspects of the industry before making an initial investment.

Gas prices rise or fall, when this happens so too the amount of money an investor receives. Whereas, when it comes to investing in renewable energies, prices generally stay the same. Although, there can be times when repairs may be needed at which time investors in hydro, solar and windmill operations must often share in repair costs.

Ultimately, those looking to invest in this area need to have at least some capital. For, there can often be invoices related to operating costs that override dividends received. When this is the case, it is important the investor be able to cover these costs. Otherwise, like with other property, the interest can be repossessed and resold at the discretion of an owner or owners, the operator or the state in which the property is located.




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