Approaches To Oil And Gas Investments

By Olive Pate

An investment is a venture that investors undertake and expect returns in the near future. Some prefer long term ventures while others prefer short term ventures. Long term ventures are undertaken by people who want returns in the long run, they are more interested in growth and expansion of their businesses than making quick returns on their initial money. For short term ventures, investors here are not willing to undertake projects that will last for more than a year without making any returns on their initial outlay. They concentrate on projects which will give them return on their money within the shortest time possible. Oil and gas investments can serve both the long term and short term investor.

There are few methods of evaluating the period in which a project will take to give returns, one of them include payback period. Payback period takes into account initial cash outlay used by investor and the accruing cash inflow, it is the time taken for cash inflows to march the amount of money used. In this technique an investors chooses a project that a shortest time possible.

Such techniques include present value technique. This method discounts future cash flows to present value and equates them with the initial cash outlay. A decision criterion in this technique is an investor is expected to select a project that has a positive net present value.

Another technique is payback period. Those investors who use this method consider the number of years it will take for them to recover the amount they invested. Decision criterion here is choosing a venture with short time period. This means that the project with big returns in initial years will definitely have short period.

Entrepreneurs in these sectors should first answer this primary question, why did such deal or project come their way. This is critical as it concerns capital intensive venture, it matches capital with project on hand. Appropriate capital will be generated by educated investors who know one or two things on such projects, they understand the technical issue and legal issues involved.

This resulting to project being over valued since the market prices then may not be the same prices now. Another challenge with such projects is structure of your deal. If you are getting into partnership you need to strike a deal that will not burden you or expose you to a lot of risk than the other partners. You should share risks proportionally according to capital contributed. One should not agree to bear all the direct costs alone.

This venture requires high technical analysis, economical, mechanical, geological and engineered analysis making it very expensive for common investors. There are few risk involved in this business and the first on is risk from people. These are the people who are handling the project such as the well operator, market brokers and others who may be involved. Their professional ability will greatly be required otherwise you may get advice from incompetent people and end up regretting later.

These people should practice honesty, exercise integrity all the time and have experience in the sector. Experience is needed the most, have the people you are engaging worked on such or similar projects before, do they have enough exposure and are they licensed to carry out such projects, these are some of the things one should look at before working or engaging third parties

About the Author:

You can visit www.fossiloil.com for more helpful information about Get The Best Returns Out Of Oil And Gas Investments.