What To Look for in Oil Drilling Investment Opportunities
What To Look for in Oil Drilling Investment Opportunities
Oil is the most traded commodity in the world. A daily global demand of more than 90 million barrels establishes ownership and production of oil as one of the possible cornerstones of global wealth generation. For the average investor, access to participate in the oil marketplace is usually filtered through the ownership of publicly traded stocks or the speculation in commodity trading. Innovative new opportunities are changing that proposition by offering oil drilling investment opportunities that welcome accredited investors to participate in direct oilfield development.
This new type of investment model is characterized by advantages that discerning investors could evaluate for potentially securing future wealth. These advantages include:
- Productive fields
- Income tax mitigation opportunities
- Recurring monthly revenue distributions
- Scalability, which accretes value while the oilfield is being developed
- Possible multiple return on invested capital
- A range of divestment opportunities
This innovative manner of direct oil and gas investing may offer accredited investors access to become an owner and participate in one of the nation’s most important industries.
There Is No Substitute for Oil
The reason for the incredible global demand for oil is twofold: 1. Oil is essential to transport, logistics, aviation, and the production of hundreds of products. 2. No substitute is currently available and as a product, it is a daily consumable which has limited availability. Oil uniquely satisfies a significant portion of the world’s energy demand while simultaneously being consumed in the manufacture of products as varied as plastics, contact lenses, bicycle tires, and ballpoint pens. An ancillary component of the production of oil is the symbiotic relationship of co-existing with natural gas, the world’s third most popular commodity.
The increasing demand from the world recovering from the impact of COVID-19 could be a possible substantial benefit for oil and gas investing opportunities. The global recession of 2008 forced oil prices to drop from nearly $150 per barrel to as low as $35 per barrel, but the commodity rebounded to more than $100 a barrel and prices stabilized for several years. There are indications that this same pattern could repeat in the new future.
That pattern of wealth generation makes oil a highly prized commodity and has engendered several investment options.
The Traditional Approach to Oil Investment
Ownership of publicly traded stocks represents the most common form of oil investment available to everyday investors.
Other methods of investment include:
Investment in oil companies. Investment in the shares of major oil-producing companies offers the practical benefit of annual dividends associated with the company’s profits. These blue-chip stocks may carry a high cost of entry, and the companies are exposed to the risks of production, oilfield infrastructure issues, and environmental issues. However, weathering price fluctuations can provide both long-term and short-term rewards.
Exchange-Traded Funds. Rather than pin an investment to a specific company, it is possible to track the movements of oil markets and seek profits by speculating on future performance. These approaches to oil investment may test the skills of the investor to prudently evaluate and monitor commodity prices and be available to initiate transactions contemporaneously within the fluctuations of the market.
Direct Ownership in an Oilfield. In addition to traditional approaches to oil investing, accredited investors may invest in direct ownership of a productive oilfield.
An Ownership Model of Oil Investment
This new form of oil drilling investment opportunity focuses on production rather than product. It centers on projects that operate on proven oilfields and offers accredited investors greater control over their wealth through scalability, divestment, and the accretive value of both the production of oil and gas and the potential resources generated by the development of the oilfield. Anyone considering such a direct investment in an operating oilfield should evaluate the investment opportunity on the basis of the following attributes.
1. Productive Fields
Ownership opportunities can be created by developing established oilfields with horizontal drilling techniques. By targeting proven fields, investors who become part-owners of an Oil Fund increase their opportunity for steady production when compared to the risk profile of potential of exploratory drilling programs.
2. Income Tax Mitigation Opportunities
Current year deductions such as intangible drilling costs and bonus depreciation (current deductions applicable to tangible costs) and depletion deductions are available to claim and reduce the investor’s current year income tax obligation.
3. Recurring Monthly Revenue Distributions
Investors in an ongoing oil fund operation may potentially receive consistent monthly revenue distributions in line with oilfield production. As oil and gas is produced and sold, net production income is normally generated and available for monthly distributions.
4. Scalability That Draws Value for the Life of an Oilfield
Unlike the limited benefits of investing in a specific well, Oil Fund investments may provide the investor with the potential rewards of many operating wells. Leading funds are normally designed to drill several wells in proven oilfilelds, thus increasing the value of the oil and gas mineral acreage situated within the oilfield and the generation of undeveloped drilling locations, commonly referred to as PUDs, also within the boundaries of the oilfield. This added value offers the possible potential multiple return on invested capital upon divestiture.
5. Rapid ROI
The ownership model of oil drilling investment opportunities seeks a targeted divestment within a 2-3 year timeframe and is designed to achieve a rapid ROI opportunity.
6. A Range of Divestment Opportunities
Oil Fund investors can take advantage of the divestment opportunities that may accompany a productive oilfield. Once a commercial well is established, with the Fund owning an undivided interest in the commercial well, the Fund may elect to sell either a portion of this undivided interest or 100% of the undivided interest to create a liquidity event, returning a portion or all of the invested capital plus ideally a multiple of the invested capital.
Benefit From Oil Drilling Investment Opportunities
Oil continues to rank as the world’s most popular trading commodity because of its established demand and variety of uses. A resilient market and the appropriate investment model may provide oil and gas investors a method of generating future wealth from a global necessity.
Divestiture options, income tax mitigation strategies, and monthly revenue distributions present possible judicious benefits of direct ownership oil drilling investment opportunities.
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Investments in oil and natural gas partnerships are speculative and involve a high degree of risk. Oil and natural gas wells are naturally depleting assets. Cash flows and returns may vary and are not guaranteed. Past performance is no indication of future performance. Nothing herein shall be construed as tax or accounting advice. Investors may lose money. Some of the risks other than those described herein associated with investment in Larimer County Energy Fund are described in the Risk Factors section of the Confidential Private Placement Memorandum concerning the Larimer County Energy Fund accompanying, preceding, or following this Executive Summary. Prospective investors are urged to read and consider carefully the risks described in that section. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the investment opportunity described in this Executive Summary. Neither the Securities and Exchange Commission nor any state securities commission has determined the accuracy or completeness of the information contained within this Executive Summary or in the Confidential Private Placement Memorandum concerning the offering of limited partnership interests. The offering of limited partnership interests is made only by the Confidential Private Placement Memorandum, which must accompany, precede, or follow this Executive Summary, and an investment decision can only be made by the execution of definitive investment documents. Investors in Larimer County Energy Fund are required to be “Accredited Investors,” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.