mercredi 8 juillet 2015

Approaches To Oil And Gas Investments

By Olive Pate


An investment is a venture that investors undertake and expect returns in the near future. Some prefer long term ventures while others prefer short term ventures. Long term ventures are undertaken by people who want returns in the long run, they are more interested in growth and expansion of their businesses than making quick returns on their initial money. For short term ventures, investors here are not willing to undertake projects that will last for more than a year without making any returns on their initial outlay. They concentrate on projects which will give them return on their money within the shortest time possible. Oil and gas investments can serve both the long term and short term investor.

Business who wish to grow and expand with go for long term projects while those business who want to make quick return on their capital invested they will go for the short term investments. There are several techniques that can be used to evaluate the viability of a project even before undertaking it.

To realize this goals such companies can undertake this ventures. If a firm is not financially stable it can undertake short term investment and also if it is financially sound it can try long term projects. Criteria for decision making can vary from company to another depending on their evaluation techniques. Some of techniques that can be used include payback periods, net present value and rate of return.

Another technique is payback period. Those investors who use this method consider the number of years it will take for them to recover the amount they invested. Decision criterion here is choosing a venture with short time period. This means that the project with big returns in initial years will definitely have short period.

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.

Those who want to take up this venture should be in a position to evaluate risk involved properly and come up with mitigation measures to protect them from such risks. This business is not for those with faint heart or those investors who are risk averse, it is for risk takers. This is because the venture is extremely risky.

This venture requires high technical analysis, economical, mechanical, geological and engineered analysis making it very expensive for common investors. There are few risk involved in this business and the first on is risk from people. These are the people who are handling the project such as the well operator, market brokers and others who may be involved. Their professional ability will greatly be required otherwise you may get advice from incompetent people and end up regretting later.

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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