Oil is a money-making machine, and believe us when we say it’s never too late to diversify your portfolio and invest in a productive oil well. But before you take the plunge and dip into the oil industry, here are 5 things you should know.
Investing in an Oil Well Instead of Big Oil Can be More Profitable for the Investor: For those who are interested in investing in oil, big oil companies seem to be the safest and most profitable route. They have a reputation for doing well for themselves and for their stockholders, so you should invest in their company, right?
Not necessarily. When investing in big oil companies, so much of your money goes into the upkeep and overhead of the company itself, not into the oil. By investing in oil wells instead, your money is going toward very little overhead and a whole lot of black gold.
Being an Investor Doesn’t Make You Liable: Investing in an oil well gives you some sort of ownership over the operation, but you don’t have the accountability the supervisors of the well have. The only thing you are liable for is the money you lose or the money you earn — not any potential accidents that happen at the drill site.
So if this was a reason that made you apprehensive to invest in oil wells, you’ve got nothing to worry about.
Oil is a Commodity, So it’s Priced the Same Everywhere: The price of a barrel of oil is the same everywhere you go, but the amount of oil isn’t. Some wells will be full of oil, while others will only produce oil for a handful of years. For that reason, it’s important to know how reliable and successful the operator is at exploring for and finding oil.
Your profits rely heavily on how much and how long oil can be extracted from the well you invested in.
Investing in Oil Has Huge Tax Benefits: About 65-85% of your investment dollars will go straight to what is known as “intangible drilling costs.” These costs include things such as chemicals, mud, labor and grease, all of which are necessary to run a well-oiled machine.
Such a high percentage going to things that aren’t oil may seem a little risky, but you’re in luck: every dime spent on the intangibles is tax deductible.
Oil Investments Are a Great Way to Diversify: High oil prices are typically a huge reason for economic slowdowns, which could cause some volatility in the stocks you’ve invested in. However, at the same time your stocks may be underperforming, your oil investment will be well served.
On the other hand, when oil prices are low, the economic climate tends to pick up. Either way, you’ll be somewhat protected against either a rise or drop in oil prices.