Factors to Consider in Oil and Gas Joint Ventures

by | Mar 4, 2013 | Business

Oil and gas joint ventures offer the security of being an established commodity for centuries as one of its principal advantages. In recent years, even during economic recession, oil and gas joint ventures have not shown any sign of instability but have instead become even stronger and more profitable. Investors who are in the process of diversification are increasingly turning to these structures as a way to offset potential loss in more traditional market settings. The reason oil and gas ventures are stable and work as a hedge against potential loss through other vehicles is that they are not suspect to the volatility in other markets that are contingent upon economic, political and social factors. Oil and gas ventures do not share that dependency.

That doesn’t mean, of course, that even oil and gas joint venture is going to be a sure thing. As with any kind of investment, it is important to ask specific questions and research the company before divesting your capital.

Initial investments should be stable. Riskier opportunities may come later that may pay off. Wildcatting, or research and exploration for new wells, is far riskier than putting capital in fields that are already existent and productive.  Finding out how productive particular available units are is important, as is making sure you understand what kind of a return on investment (ROI) is written into your venture agreement. The better ROI should be at least 5 to 1 after tax incentives and benefits have been applied.

Other factors necessary to consider when seeking stable oil and gas joint ventures is estimated payout, estimated reserves (or how long you can expect your investment to perform based on productivity), what the continued estimate on initial daily production (IP) looks like, the history of a particular oil field or available units as well as a general history of success and failures experienced by the company with whom you are negotiating.

Most investments tend to require an initial investment of about $15,000 per unit, and companies will require a minimum investment that may vary. This is a number you will want to know. Moreover, finding out what the tax breaks on your investment are is going to be very important, as it will offset risk considerably and can even be the decisive factor when uncertain about some particular investments.

Of course, it is always necessary to do all of your research and only invest your money in ventures that meet specific criteria for probable success. Amateur or beginning individual investors often buy into the hype of an oversold product, which should be avoided at all costs.

Latest Articles

Categories

Archives