As oil and gas became the main source of energy, especially during the mid-2000's, oil and gas prices increased proportionately. Oil and gas investment became the most lucrative investment opportunities due to energy demands estimated to be 86-87 million barrels a day according to the Organization of Petroleum Exporting Countries' 2008 figures.
An investor looking for tax exempt direct exposure to the industry should consider an oil and gas unit investment trust. This would involve investing in either the production or the purchase of exploratory drilling assets and machineries. This usually provides a pass through treatment from petroleum investments and incomes. Mutual funds and future contracts are the most common investments in the oil industry.
Several investing opportunities are available in this ever-growing industry as there is an opportunity suitable for everyone, from the small shareholder to the big investor. One of the easiest methods of investment is purchasing stock in oil and drilling companies. Larger investors can use exchange-traded fund (ETF) to make direct investments on future contracts in the oil sector. Before investing, it is advised that a thorough research of the sector be carried out, and the services of an energy investment professional be employed.
What drives the world economy is basically oil and gas. There are many ways by which the products from gas and oil can be used, therefore, anything that happens within this sector has the power to change the direction of a country's economy.
During exploration, companies lease or buy land in known areas near, or containing, proven energy resources to improve their chance at profit realization This process still carries an element of risk as striking oil cannot be guaranteed by the existence of other resources alone. Further support and services are needed such as transportation, pipeline providers, shipping, logistics, equipment manufacturers, refiners and rigging.
Historically the oil industry has played the role of a diversifier in the economy as when oil and gas prices rose, the economy would generally be slow. Investors in the energy industry are cautioned of this trend. Also, large profits are realized which can even amount to 10 times the initial capital invested. The sector also enjoys many tax advantages as most tax is invisible to a shareholder who buys shares from a public traded stock.
In the event that the drilling does not strike oil or gas, huge losses can be realized due to the volatility of the industry and this is where diversification comes in. Shares especially of smaller companies are hard to liquidate and one has to redeem interest with your company or other limited partner which is usually direct. Higher commissions are also paid to brokers which can sometimes exceed 20%.
Another risk includes people risk. The professional ability of the explorer cannot be underestimated as the experience of the operator plays a key role in profit realization. There are mechanical risks, as the actual oil and gas exploration involve a lot of activities hence all the mechanical questions must be answered prior to the actual drilling. The reserve risk takes into consideration the well control and the seismic evaluation of the well. Finally, the commodity price risk must be catered for.
An investor looking for tax exempt direct exposure to the industry should consider an oil and gas unit investment trust. This would involve investing in either the production or the purchase of exploratory drilling assets and machineries. This usually provides a pass through treatment from petroleum investments and incomes. Mutual funds and future contracts are the most common investments in the oil industry.
Several investing opportunities are available in this ever-growing industry as there is an opportunity suitable for everyone, from the small shareholder to the big investor. One of the easiest methods of investment is purchasing stock in oil and drilling companies. Larger investors can use exchange-traded fund (ETF) to make direct investments on future contracts in the oil sector. Before investing, it is advised that a thorough research of the sector be carried out, and the services of an energy investment professional be employed.
What drives the world economy is basically oil and gas. There are many ways by which the products from gas and oil can be used, therefore, anything that happens within this sector has the power to change the direction of a country's economy.
During exploration, companies lease or buy land in known areas near, or containing, proven energy resources to improve their chance at profit realization This process still carries an element of risk as striking oil cannot be guaranteed by the existence of other resources alone. Further support and services are needed such as transportation, pipeline providers, shipping, logistics, equipment manufacturers, refiners and rigging.
Historically the oil industry has played the role of a diversifier in the economy as when oil and gas prices rose, the economy would generally be slow. Investors in the energy industry are cautioned of this trend. Also, large profits are realized which can even amount to 10 times the initial capital invested. The sector also enjoys many tax advantages as most tax is invisible to a shareholder who buys shares from a public traded stock.
In the event that the drilling does not strike oil or gas, huge losses can be realized due to the volatility of the industry and this is where diversification comes in. Shares especially of smaller companies are hard to liquidate and one has to redeem interest with your company or other limited partner which is usually direct. Higher commissions are also paid to brokers which can sometimes exceed 20%.
Another risk includes people risk. The professional ability of the explorer cannot be underestimated as the experience of the operator plays a key role in profit realization. There are mechanical risks, as the actual oil and gas exploration involve a lot of activities hence all the mechanical questions must be answered prior to the actual drilling. The reserve risk takes into consideration the well control and the seismic evaluation of the well. Finally, the commodity price risk must be catered for.
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