Oil and Gas Handbook




Chapter 8:

Often, investors focus primarily on the potential rewards of an investment; however, you must be equally aware of the risk that accompanies it. When investing in an oil and gas drilling project, you must be aware that it is possible you may lose your entire investment due to the inherent risk completed oil welland complex process associated with locating these natural resources. For that reason and to encourage domestic drilling programs, the U.S. government effectively underwrites a portion of the risk by providing substantial tax benefits to investors – tax benefits which exist whether the well is successful or not.

Due to the risk and complexity of drilling projects, it is unlikely an investor will have success with every project. Therefore, it is important to ask yourself if you're willing and able to invest in multiple projects rather than approaching it as a one-time deal.

You should also understand that this is a business that has its fair share of unscrupulous players. Ask for references so you can hear what the company's existing investors' experience has been. And, instead of just evaluating the prospect for hitting oil, break the deal down to make sure there is going to be a fair distribution of the rewards. Finally, find a consultant to give you an unbiased opinion as to the oil and gas project you are considering.