Family Investment: Investing in Oil

For some time now the price of oil has been decreasing (and quickly), with a dramatic fall from $100 to $50 per barrel occurring between the summer and the New Year. This decline has Wall Street titans and average investors sniffing around the oil fields and many are speculating about scooping up stock in oil. The hope is that prices have near bottomed out and anyone who invests will soon be rewarded with a steady rise back and a significant profit. Before taking advantage of this possible cyclical downturn in prices and betting the family rainy day fund on oil, here’s what people need to know about the intricacies of oil investing:

Basic Ways of Investing

Oil investments come in a number of forms with varying degrees of risk and tax implications. Some of these include limited partnership interests, ownership of fractional undivided interests in leases, and speculative general partnerships in oil exploration and drilling. According to US Emerald Energy (, limited partnerships for drilling offer the investors a tax write-off and quarterly dividends in exchange for supporting the project with capital investments. People can also buy stocks in a number of oil companies, invest directly in oil futures, or invest in oil indirectly through commodity exchange-traded funds, Oil ETFs, or mutual funds.

Con Schemes in Oil Investment Sector

As with most investment opportunities, there are a handful of people in the arena trying to con investors out of money and there are plenty of fraudulent oil deals. The deal is set up so that the legal entity is in one state, the physical oil fields in another, and investment offerings in yet another, insulating the nonexistent “company” since the chance of an investor dropping by the site is low.

Much of the trickery happens online these days in “boiler rooms” where high-pressure sales agents, with little to no experience in the energy sector, try to swindle unsuspecting potential investors into dropping money. The schemes are well built, some with professional brochures and e-mail promotions. Typical signs of these scam internet pitches include unsolicited phone calls, e-mails, and messages claiming the risks are minimal, it’s a private deal for a chosen few, the salesperson is personally invested, they’re making a ‘hit’ on every well, and a big, reputable company is about to move into the area, amongst many other tactics.

Checklist for a Legitimate Investment

Avoiding an investment hoax is simple, however, the potential investor is careful with the types of questions they ask and the research they do. Consider only oil exploration and production companies that are already well established on the New York Stock Exchange. Security regulators have created investor checklists all potential investors should go through before handing over their money. For oil there are five main steps that include checking offerings and registration requirements with the state securities agency, making sure the history of the company and its principals are legitimate, getting all the specifics about funds raised and what they’ll be used for, and obtaining a copy of the lease/legal description of the drilling location. Any reluctance to provide answers or written explanations by the salesperson is usually a sure sign of fraud.

Questions to Ask Before Investing

Before making any type of investment, it’s important that the potential investor knows that they are financially secure and they are making a well-calculated risk with their money. Consultation with an expert is always a good idea before committing any sum to an investment deal. Make sure to ask about all the details of the operator, the experience and history of this or similar ventures, the compensation terms, and any tax implications.

This article was contributed on behalf of US Emerald Energy. Check out their website and read about how Michael L.F. Slavin is a US Emerald Energy success story.

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