Choose Your Investment Opportunity Wisely

span>Share:When choosing an investment opportunity in the oil industry it is important to seriously evaluate risks, especially if you are an individual investor who is just getting into the game. While most companies will only allow accredited investors to participate (which means that you likely already know about making wise investment decisions and calculating risks), its also critical to understand that the oil industry is unlike many other investment vehicles. The profits can be extremely substantial and include liquid cash flows due to ongoing production, but the losses can be devastating and complete.

One of the primary and most obvious risks associated with the investment opportunity that is embodied in the oil industry is the possibility of hitting a dry well. This is why many individual investors do not put their money exclusively, or at all, in wildcatting. (Wildcatting is basically an oil industry term that describes the process of looking for new oil beds.) If you are being sold on the idea of an investment opportunity in discovering new oil, while the potential to make a lot of money is legitimate, the risk is also enormous. Many investors therefore prefer buying units in wells that are already producing. The risk is much more limited, but so is the profit.

Another more subtle risk is buy into a company that isnt quite legitimate. Some companies use high powered sales tactics to lure investors into their sure deal with schemes of getting rich as fast as possible, but seem to only be able to hit dry wells. Other may never even dig at all and are not properly licensed, flagrant scams. Such companies may claim that oil has been found and begin to send checks (cut from your investment) in order to make you feel secure enough to pay more money in order to cover operating costs. Another ploy is for companies to drill numerous wells in the same field and hit dry, then find oil but claim that the well that found oil belongs solely to them and wasnt part of your investment.

Its important therefore to be more suspicious of companies that are trying to oversell a project, that talk about a sure thing, or that havent really been around very long. Do your homework and make sure the company you may be dealing with is appropriately licensed with NASD or SEC. Research previous success or failures and talk to as many people as you can. The scammers will most likely be known, and the real, reputable companies will have been around the block, and people will know them as well.

by: Molly larzelere

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