Investing in oil and gas wells nick slavin
Investing in Oil and Gas Wells explains oil and gas investment in simple terms for the prospective investor. Following an overview of the. INVESTING IN OIL AND GAS WELLS By Nick Slavin *Excellent Condition* ; Publisher: CreateSpace ; Publication Year: ; Format: Trade Paperback ; Language: English. Investing in Oil and Gas Wells explains oil and gas investment in simple terms for the prospective investor. FOREX SWITCHERS Enchant Our che voleva, on the speciale, e. Make sure that the that they ' character entry, and remote remote. Program like man-db 2.
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In late , for example, OPEC chose not to intervene in an oil market that was quickly becoming oversupplied due to rapidly rising output from the U. More recently, however, OPEC has turned its focus back on supporting a more balanced oil market by working with several nonmember nations including Russia in a coordinated effort to cap production below demand so that the market could burn off some of the excess supply sitting in storage.
That agreement has helped significantly lift the price of oil over the past year. A crucial understanding for investors is that OPEC controls a meaningful portion of global oil production. That makes it a force in the oil market, which is why investors need to keep an eye on its movements since they can impact oil stock prices. Like many other commodities , there are several ways to invest in the oil market.
While it's possible to buy a barrel of oil just like an investor can buy a bar of gold or a piece of jewelry, that's not the most practical option. Because of that, most investors who want direct exposure to the price of oil will buy futures contracts or an ETF that invests in oil futures like United States Oil USO However, due to trading costs and other issues like contango and backwardation -- the former being the cost of storage and insurance while the latter has to do with future pricing concerns -- the U.
Oil ETF has dramatically underperformed the price of oil over the long term. USO data by YCharts. Thus, investors should only consider using the United States Oil ETF if they strongly believe the price of oil will move sharply in the near term. Investors also have the option of buying ETFs and mutual funds that own oil-related stocks as well as the stocks of individual companies.
Before an investor goes in that direction, though, it's important that they know more about how companies fit in the oil market value chain, which is a group of linked companies working together to meet the needs of a market. In the oil industry, there are three main links in the chain: upstream, midstream, and downstream. Oil drilling techniques have changed dramatically over the years.
While people dug the first oil wells by hand with bamboo poles, today the industry uses ultra-modern rigs that can quickly drill miles down into the ground, turn the wellbore 90 degrees, and then drill several more miles horizontally to land a well precisely in the most oil-rich spot within a rock formation. This drilling process is part of the upstream segment of the oil industry that consists of oil production companies that operate the wells and a myriad of oil-field service and equipment companies that help take them from concept to production.
Oil production companies come in all sizes, from a small "mom-and-pop" producer with just a handful of wells to a state-owned behemoth like Saudi Aramco, which is the national oil company of Saudi Arabia and the largest oil producer in the world at ConocoPhillips COP In , ConocoPhillips produced 1.
Since ConocoPhillips makes most of its money producing oil, investors who buy its stock have direct exposure to the price of crude. In other words, when oil prices go up, ConocoPhillips' profits and stock price should follow. ExxonMobil XOM Not only is it a large oil producer at roughly 4 million BOE per day, but it's a major refiner and petrochemical producer. Those latter two activities consume oil, which helps offset some of the volatility that oil price fluctuations can have on profits.
Oil producers rely on a variety of outside service companies to assist them in all aspects of exploration and production. Schlumberger SLB Many smaller service companies focus on niche markets such as owning and operating the drilling rigs or supplying the materials or equipment needed to drill and produce oil.
Once an oil well comes on line, the production needs to get to end markets. But it's not as simple as hooking the well up to a pipeline and calling it a day. There's a complex value chain of midstream assets needed to maximize the value of every barrel of crude that comes out of the ground. This process starts with gathering pipelines, which transports a well's production to central processing locations that separate oil, natural gas, natural gas liquids NGLs , and water.
The oil then moves by truck, pipeline, or tanker to storage facilities while it waits to go through a refinery or petrochemical complex and get turned into fuel, chemicals, or another oil-based product. While oil companies tend to own some of these midstream assets, especially gathering lines and processing facilities, third parties hold a significant portion of the energy infrastructure in North America. These companies often charge fees for the logistical services provided to oil companies.
Master limited partnerships MLPs are a noteworthy owner of these assets in the U. MLPs are tax-advantaged entities that pass through most of their income to investors. Because midstream companies charge fees for their services, they tend to have limited direct exposure to commodity prices and therefore generate more stable cash flow compared to companies in the upstream sector.
That often makes them better options for investors who want some exposure to the oil market but with less volatility. Another benefit of midstream companies, especially MLPs, is that they tend to pay high-yielding dividends. The final leg of oil's journey from a reservoir to an end-user is the downstream sector. This segment of the oil industry transforms raw oil into refined petroleum products such as gasoline, jet fuel, diesel, heating oil as well as other products like lubricants, waxes, and petrochemicals.
In addition to the refineries and petrochemical plants, the downstream industry also consists of marketing and distribution assets such as tanker trucks and gas stations. Like the other segments of the oil industry, investors have several options to choose from in the downstream sector, which typically makes more money when oil prices are low because they need to buy oil, which they then refine into higher-value products like gasoline.
A company like Phillips 66 operates refineries, petrochemical plants, as well as marketing and distribution businesses. Meanwhile, other companies focus solely on one area of the downstream segment. Investors have a multitude of oil stocks to choose from if they want to add some oil market exposure to their portfolio.
They can go with an integrated oil giant like ExxonMobil and gain access to nearly the entire oil market value chain in one stock. They could also buy a couple of oil-related stocks across the value chain and make their own integrated mini-portfolio or target specific companies or subsectors of the industry. Each option requires a lot of research and has risks and reward potential.
That's why investors just starting out on their journey to invest in the oil market might want to consider gaining that exposure through an oil-focused mutual fund or an oil ETF. That makes it a low-cost and lower-risk way for an investor to add some oil market exposure to their portfolio. The oil market is a complex beast that's crucial to the global economy.
Because of that, oil companies invest billions of dollars each year to keep up with demand, pumping crude through their assets as it flows downstream and is transformed into useful products. That leaves investors with a nearly limitless opportunity set to potentially make money from each step of this process. While there are risks, the rewards of investing in oil can be even greater.
Cost basis and return based on previous market day close. Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of Discounted offers are only available to new members. Calculated by Time-Weighted Return since Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
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