Approaches To Oil And Gas Investments
| 08:55:00 |
This is a project which is very risky but with satisfactory returns, these two products are currently the most demanded commodity in the world. This is because of their industrial use. Prices of these products are too high creating a lot of interest to investors to undertake such ventures. Irrespective of it being a lucrative business, security regulators have warned potential investors of possible oil and gas investments dangers and scam that exist.
Currently among the riches people in the world accumulated their wealth from energy related projects. These projects can be classified into long term projects or short term projects. Most businesses have long term goals and short term goals too.
Such techniques include present value technique. This method discounts future cash flows to present value and equates them with the initial cash outlay. A decision criterion in this technique is an investor is expected to select a project that has a positive net present value.
Some of risk facing this industry are reserve risk, this risk involve not striking a big enough reservoir to meet your demands. Before starting drilling process first carry out a series of tests on the soil to determine or predict with reasonable accuracy the size of reservoir to expect. Another challenge is price risk, the prices of gas and oil are state controlled or sometimes left to market demand and supply forces to set prices.
This means their prices keeps on fluctuating with time, they are never constant. Even if one strikes clean natural gas or oil they will have to sell them at prevailing market prices. This is a challenge because an investor may have done their evaluation on the project viability with certain prices without factoring out any price changes.
This resulting to project being over valued since the market prices then may not be the same prices now. Another challenge with such projects is structure of your deal. If you are getting into partnership you need to strike a deal that will not burden you or expose you to a lot of risk than the other partners. You should share risks proportionally according to capital contributed. One should not agree to bear all the direct costs alone.
This venture may take any of following forms, partnership with limited liability, buying some shares in lease contracts and hence becoming a shareholder who is entitled to interest and lastly general partnership. Each category has different tax consequences and share liabilities differently too. General partnership lack limited liability and therefore the partners are personally liable, this means their properties can be used to recover any debt by the partner.
In limited partnership, gas or oil firms will offer their partnership units to the public at a fee and use the proceeds to drill wells and lease properties. In return they get to manage these projects. The sponsor firm takes fifteen to sixteen percentage of investment costs and eventually also get their share of profit in the same percentage. This is like a gamble and the risk one. They are highly speculative and very illiquid ventures.
Currently among the riches people in the world accumulated their wealth from energy related projects. These projects can be classified into long term projects or short term projects. Most businesses have long term goals and short term goals too.
Such techniques include present value technique. This method discounts future cash flows to present value and equates them with the initial cash outlay. A decision criterion in this technique is an investor is expected to select a project that has a positive net present value.
Some of risk facing this industry are reserve risk, this risk involve not striking a big enough reservoir to meet your demands. Before starting drilling process first carry out a series of tests on the soil to determine or predict with reasonable accuracy the size of reservoir to expect. Another challenge is price risk, the prices of gas and oil are state controlled or sometimes left to market demand and supply forces to set prices.
This means their prices keeps on fluctuating with time, they are never constant. Even if one strikes clean natural gas or oil they will have to sell them at prevailing market prices. This is a challenge because an investor may have done their evaluation on the project viability with certain prices without factoring out any price changes.
This resulting to project being over valued since the market prices then may not be the same prices now. Another challenge with such projects is structure of your deal. If you are getting into partnership you need to strike a deal that will not burden you or expose you to a lot of risk than the other partners. You should share risks proportionally according to capital contributed. One should not agree to bear all the direct costs alone.
This venture may take any of following forms, partnership with limited liability, buying some shares in lease contracts and hence becoming a shareholder who is entitled to interest and lastly general partnership. Each category has different tax consequences and share liabilities differently too. General partnership lack limited liability and therefore the partners are personally liable, this means their properties can be used to recover any debt by the partner.
In limited partnership, gas or oil firms will offer their partnership units to the public at a fee and use the proceeds to drill wells and lease properties. In return they get to manage these projects. The sponsor firm takes fifteen to sixteen percentage of investment costs and eventually also get their share of profit in the same percentage. This is like a gamble and the risk one. They are highly speculative and very illiquid ventures.
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