Oil and gas investors make a lot of money buying into a business that always guarantees maximum returns. However, even with the assured promise of bigger bank accounts, investing poorly into the business will equally lead to devastating losses. There are loopholes in the oil business that one needs to look out for and several ways on how to determine the legitimacy of a potential oil or gas investment.
What to Expect When Investing in Oil and Gas
Newly discovered crude oil sites are gold mines to oil investors. Nevertheless, not all oil and gas leads are of benefit to the investor. There exist several scammers in the oil and gas business who pose as legitimate brokers or drilling companies to fleece unsuspecting victims.
To be safe, you must make sure that you have a legal copy of the lease where the drilling company plans to operate. In addition to a lease notice, you must also receive a copy of a credible insurance company, protecting the entire drilling project and the operators as well. An AFE copy accompanies all other documents produced by the drilling company, listing all the potential costs that will arise in the entire drilling project so that you can know the exact amount they are supposed to chip in.
A good drill operator has a record of accomplishment of oil and gas leads they have worked on in the past. If there are past oil and gas investors the drill operator has worked with before, find out if they were satisfied with the previous oil projects. If the investors made money, it is an assurance that the oil and gas leads presented are legitimate.
What to Avoid When Investing in Oil and Gas
As potential oil investors, you shouldn’t be involved in drilling project facilitated by brokers or dealers. The investment math must also be correct; you should avoid oil and gas leads whose net revenues are below 70% compared to the working interest. Again, never put money in a drilling project where the revenue comes from the operator and not from the purchaser.
Lastly, once the drill operators make their proposal, they should give the oil and gas investors ample time to think about it and know what they are getting involved in. Any drilling proposal forced down to the investor or makes one feel rushed in decision-making is a proposal the investor needs to avoid.
It is possible to make money as an oil investor through oil and gas leads. However, it is vital understand all the legal aspects of the business as well as the dos and don’ts of doing business with drill operators.