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Are You Achieveing The Most From Your Investment Portfolio?

By Expert Author: Kathlyn Simino

The Oil and Gas marketplace is among the biggest and most lucrative markets on the planet. Corporations in this industry can be classified as Exploration and Production (E&P), Refining and Distribution (R&D) and Drilling Service providers.

Investing in Gas and oil wells offers you direct engagement within the Oil and Gas Sector. As an accredited investor, you can invest in a number of wells entitling you to consistent sources of income over a very long time, faster growth and a large number of tax advantages. Buying an active interest in a well which was successfully sunk is known as 'Buying Production'. Buying Production helps prevent the potential risks involved in investing in a dry well. You still benefit from the production but as opposed to working interest, you won't be eligible to receive tax advantages.

Another way of getting exposure to the Oil and Gas marketplace is to invest in the stocks of Oil and Gas companies. This sort of investment is usually quite complicated. The investor should be aware of how a company generates its profits. For E&P companies; investors need to comprehend the processes of production and also the production potential for the current and future exploration activities. For drilling and service companies, investors should understand the energy cycle along with the competitive landscape.

When examining the financials of these businesses, be sure that revenues and income grow consistently. A one-off occurrence which has radically increased revenues ought to be looked into. Review the Price earnings and growth ratios with competitors within the industry. In the balance sheet, inspect the debt levels; elevated debt levels affect credit ratings and that could weaken the company's potential to finance capital expenditure or purchase new businesses. Look at the financial leverage of the company as well as the working capital by looking at the relevant ratios. Lastly, make sure that you analyse the cash flow statement. Businesses can adjust income records but never cash flows.

Money market funds are professionally maintained funds that behave as an investment vehicles. Oil and Gas investors can contribute their funds in a pool handled by Oil investment experts who then invest the funds in options that has a realistic risk/return tradeoff. This provides small investors a way to invest in diverse stocks and shares and other financial securities. Mutual funds are sold as units that may be purchased or sold to redeem their net asset rate.

ETFs are a way of getting exposure to performance of Oil and Gas while not having to own Oil. Exchange traded funds invest in derivative contracts like futures trading, options and forwards for Oil and Gas related products. Essentially the most popular Exchange traded funds is the United States Oil 'USO'. Since the price of oil are predominantly not correlated to stock market returns, ETFs keep to the oil price more closely than energy shares and that can work as a diversification and hedging tool. Available Exchange traded funds include single commodity plus multi commodity Exchange traded funds; covering oil, natural gas, and gasoline and many others.

Lease agreements grant the possessor of the lease the ability to drill wells around the property stated on the lease. The owner of the property benefits from a royalty for the amount of oil that's been extracted from his property. The lease will normally specify the total number of wells which could be drilled within a given length of time. The holder of the lease optimises the length of the lease for optimum returns. Consequently, the owner gains advantage from high royalties. Leases can gain in worth if the property happens to be richly endowed with reserves. Unfortunately, though uncommon, leases could also expire before a well is drilled.
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