Last year, the global oil and gas exploration and production industry rose a whopping 71.8%, with further increases expected. For those interested in investing in oil wells and gas, the following is a comprehensive guide to navigating the high-reward but complex landscape.
Petroleum – crude oil – is a major commodity in the U.S. and globally. It is extracted from the ground with large oil rigs then refined to produce gasoline and other products such as bike tires, perfumes, deodorant, paint, mops, golf bags, and hair coloring.
The world’s top 10 oil-consuming countries use more than 50 million barrels of oil daily, and projections are that, by 2035, world energy consumption will grow by 49%, with most energy supplied by oil and gas.
All this means ample, and possibly lucrative, opportunities for investors in oil. And there are multiple ways to take positions in the market.
There are advantages to investing in oil wells, including:
There are various options for investing in oil wells:
Before positioning their capital, it is key for investors to first conduct research. That should include:
There are tax benefits associated with oil well investments.
Investing in oil and gas private placements requires the investor to be accredited, meaning they are allowed to participate in investments not registered with the U.S. Securities and Exchange Commission. To qualify, one must have a net worth of at least $1 million, excluding their residence’s monetary value, or more than $200,000 in earned income in the previous two years, with the expectation of the same earnings.
Increasingly, investors are turning to alternative assets to lower portfolio volatility since such assets have low correlation to public markets. Adding them to one’s holdings can also potentially add steady passive income and protect against inflation. In every economic downturn of the last 15 years, private markets have outperformed stocks.
Going through a platform such as Yieldstreet makes such investments particularly accessible, what with its low minimums and rigorous vetting process. While no investment is risk free, all opportunities are subject to robust due diligence before it makes the leading platform.
Nearly $4 billion has been invested to date, with returns exceeding $2.3 billion. Yieldstreet also offers the broadest selection of asset classes available, including opportunities in art, real estate, transportation, private credit, structured notes, transportation, crypto and more.
Another primary benefit of oil wells and other alternative investments is diversification – spreading investments around so that exposure to any single asset type is limited. Diversifying one’s portfolio is an essential pillar of long-term investment success.
Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.
However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.
Investing in oil and gas can be lucrative, but there is an equal amount of risk, which the investor should understand. The market can also be unwieldy to navigate.
There are other alternative investments that come pre-vetted, so that due diligence is not as much of an investor issue, and that can diversify one’s portfolio.
Disclaimer: All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information. Diversification does not ensure a profit or protect against a loss in a declining market.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.