One of the most common questions we receive here is, “How do I make an oil investment?” This is a question that does not have a simple answer, unfortunately. Far too often, those who ask how to make an oil investment have that question answered by someone who is only interested in parting the oil investor from his or her money, not truly educating the oil investor about the benefits, risks, and information they need to know to make an oil investment.
Perhaps a better question would be, “How do I make a wise oil investment?”
Understanding Oil Investment Risk
There are risks inherent in any investment, and understanding the risks of investing in oil is a crucial step in learning how to make a wise oil investment. Risk can be minimized by working with a trustworthy exploration company with a track record of success and by choosing to invest in areas that have already had demonstrated success.
Make an Informed Decision about Oil Investment Opportunities
If you’re asking the question, “How do I invest in oil?” you’re not ready to invest in oil yet. Take the time to speak with your financial advisor or tax attorney to understand how an oil investment – whether the well pays out or is dry – will impact you. There are significant tax benefits available to investors whether or not the well pays.
Never Consider an Oil Investment without Knowing the Entire Scope of the Agreement
Before choosing to invest in oil, you should not only perform due diligence on the company with whom you are investing (they should be licensed in the state in which the well will be drilled) but also on the site itself by reviewing geological reports and independent surveys of the land involved.
Choose Your Partner Wisely
Some companies pad the investment amount in order to protect themselves from losses while others may try to pressure you into making a quick decision about the investment. In either case, the risk increases significantly. Choose a partner for your investment who demonstrates a level of integrity and experience in the oil industry that you can trust.