Portfolio Diversification through Investments Made in the Oil and Gas Sector

By: Sarah Paul

The oil and gas sector has seen an increased investment activity since the government has introduced new policies to encourage exploration and drilling on American soil. The demand for oil and gas all over the world is high, US is consistently reducing its dependency on foreign oil, and the fossil fuel prices are constantly rising. At this point, it seems as if the oil and gas sector is the perfect place to invest for private investors.

While buying shares of large multinationals through the stock exchange is the general way to go, investing directly in privately held exploration and drilling companies is also becoming increasingly popular. Privately held exploration companies present opportunities for direct investment, and pay dividends to investors when a well starts producing. The dividends are paid as long as the well keeps producing, and that can be anywhere between 20 and 30 years. Given the high return on investment, this passive stream of income is an additional bonus to investors who can claim operational costs as tax returns and can save money on commissions as there are no brokers involved.

Investors who usually invest through the stock exchange usually have to keep a close eye on rumors and speculations surrounding the companies they invested in, because any piece of bad news can send the stock prices spiraling down. There are also a number of other global and local factors that can influence the rise and fall of stock prices.

By investing directly in a privately held oil and gas exploration company, such investors liberate themselves from the ups and downs of the stock market. Given that the exploration technology being used today is ages ahead of what was being used 10 years ago, the chances of success are really high when the company decides to drill that first well. Even if the well turns out to be dry, the operational costs can still be claimed in tax returns and the tax incentives still apply.

Given the fossil fuel prices and the rising demand of oil and gas in emerging economies, an investment in the oil and gas sector can stabilize an investor’s portfolio. While other commodities and industries may see their ups and downs, the oil and gas sector will remain stable for the foreseeable future.

Another factor that makes investment in the oil and gas sector an attractive venture is that the American dependence on foreign oil is decreasing. By 2017, America will be able to produce enough oil to fulfill its own requirements, and by 2030, the country will be a net exporter of crude oil. Considering that China and India have seen an exponential increase in the demand for fossil fuel, it can be expected that USA will be exporting oil to them in a couple of decades. Investments made in the oil and gas sector therefore have short term and long term profitability, and limited risks.

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If you require more information about investing in the oil and gas sector, kindly visit www.texcopetroleumexploration.com

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