How to Take Advantage of Gas and Oil Investment Opportunities
March 24, 2020
Oil and gas make the world run, and there is no sign of it slowing down any time soon, Petrol or petroleum remains one of the most sought-after energy sources, as it is still the most efficient way to generate both British Thermal Units or BTUs, as well as kilowatt-hours. Petroleum also has a lot of uses in the industrial world, as it can be used as an excellent lubricant and a major component in making plastics.
Natural gas, on the other hand, is a popular source of cooking and heating energy. It can also be converted into electricity and diesel fuel. It is also crucial in making chemical fertilizers. While the price of petroleum is relatively high compared to its previous prices, when adjusted for inflation, the price of natural gas is currently near a ten-year low. It creates a possible buying point if the demand for this product needs to increase or if the supply falls. It could result in price increases.
What is natural gas? Check out https://www.eia.gov/energyexplained/natural-gas to know more.
Ways to invest
You can invest in these products in a lot of different ways. For starters, you can consider this industry a collection of firms or companies that provide services or products to people, as well as to other companies. You can also approach it as a commodity and look to profit from price changes in crude oil, diesel, gasoline, and other petroleum and gas products.
Exchange-Traded Funds or Mutual Funds
Alternatively, you can purchase shares in a lot of gas and oil-focused exchange-traded fund or mutual funds. It can help novice investors gain vital exposure to the product without taking a direct risk in product spot price and without spending too much of your money on the prospects of one firm.
American Depositary Receipt or Large Cap
These two methods can help potential investors gain proper exposure to the market – both through publicly traded companies like Exxon-Mobile (considered as the largest company in the industry as measured by the market capitalization).
People can also purchase stocks in other firms like PetroChina, ConocoPhilips, British Petroleum, Chevron, Marathon, Gazprom, Royal Dutch Shell, or the Anadarko Petroleum Corporation. Each of these companies engages in exploration, and you can purchase direct exposure to these firms by purchasing (American Depositary Receipts or shares through a broker.
You can buy derivatives like futures contracts. However, it can be very risky since futures contracts can or usually expire. An expired futures contract is worthless to anybody.
Limited Partnerships and Micro-cap or small stocks
If you want to take a direct equity position in smaller companies or projects, you might consider making a play down the industry hierarchy into micro-cap or small stocks, even limited partnerships that focus on these products. It is a specialized field in the gas and oil investment industry.
If the company is not traded publicly, you will need the help of an investment broker who specializes in dealing with this type of business to have access to these kinds of companies. Or if you have a lot of spare money to spend or invest, you can directly deal with the company’s management for a private placement.
Kinds of gas and oil investments
In general, there are four types of gas and oil investments.
These projects or companies lease or purchase land and invest money on drilling projects. If they discover oil, their investment can pay off ten or twenty times over – sometimes so much more if they use borrowed money or leverage to finance their operations. If they can’t strike the product during their operations, they can lose almost everything they invested in that project. Pure exploration firms are best suited for people with a high tolerance for investment risk.
These types of project drills near proven sites, hoping to discover further value. They are less speculative, but do not guarantee that the efforts exerted on the plot of land will produce a lot of these products.
Want to know more about the economics of exploration? Visit this site to know more.
These kinds of projects involve the acquisition of land, either through purchase or lease, over proven gas and oil reserves, and create a steady flow of income over, as well as overhead expenses. It is generally the best and safest way to get involved in drilling or extraction operations.
It is considered as an income play rather than a speculative play. The risk here is that the natural gas or oil will run out quicker than expected. This type of investment is for people who are looking for a passive income stream, but who can take more risk than people who are investing in traditional income generators like investment grade annuities and bonds.