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| Oil and Gas Interest |
Buying oil and gas royalty interests
From drilling programs for easy retail
investments, there are numerous ways to invest in the industry of petroleum.
Below are the six fundamental investment vehicles:
- Oil company stocks
- Interest partner in drilling program
- Working interest in lease
- Royalty trust stocks
- Gas and oil royalties from mineral owners
First of all, the retail and easy
investment in the petroleum industry is stocks. Call your broker and devote in
shares of XTO, BP, Exxon Mobile or any other oil company. They usually have a
nominal growth rate and low dividend yields of about three to six percent.
However, as highlighted by the BP oil spill and Exxon, there is a risk of disaster
and an even higher political risk. You just have to buy the stock which is a
pro in this case. An eight percent return over time is expected by wall street.
Secondly, there is a great risk in
investing in oil wells. The whole amount you invested might be lost. This
investment is considered a gamble because of its highly volatile nature and it
is not advised to invest in drilling programs until you have enough money. For
billion dollar companies, it is considered a pro to invest in this area as a return
of eight to twelve percent is expected.
Thirdly, partnering with drilling
programs is far more risky than buying interest in currently producing gas or
oil lease. The cash flow from production is much easier to evaluate and the
production of the well, mostly stays constant which is considered a pro. A
superior return is a big plus of this investment ranging from ten to twenty
percent. On site accidents, however, bring lawsuits at your doorstep which is
the con side of this investment.
Fourthly, purchasing shares in an oil
company is much easier than purchasing stocks in royalty trust. Royalty trusts
are often set up with huge assets of overriding and royalty interests such as
Permian Basin Royalty Trust (PTB). The pro is that there is hardly any geopolitical or legal risk associated with
oil companies and an expected return is seven to nine percent.
Fifthly, There are several pros in buying oil and gas royalty interests from the private owners. The huge return can
comprise twelve to fifty percent. Buying royalties is like buying minerals. You
must know how to buy the mineral rights which is a con in this aspect. Another
problem associated with it is to find private owner who is willing to sell.
This, however, requires active participation which is another con.
