ROI is an acronym that’s used in just about every industry, including Texas oil and gas drilling. ROI stands for “return on investment.”
It’s one of the easiest ways to compare returns across industries and investment opportunities. It shows you the percentage return on your investment, considering the amount of capital you put at risk.
So, if you invest $100,000 in an opportunity, and end up making $150,000 over the life of the project, the ROI is 50%.
Now, we’ve been in a low-rate environment for a while now, so a 50% return probably sounds absurd. The current 30-year Treasury offers a yield of 3.1%, which is well below the historical average, and at the same level, it was five-years ago.
Decent yielding investment opportunities for accredited investors are getting harder to find, likely feeling impossible. That has led many investors to take a look at the oil and gas market, where returns can be impressive and correlation to the stock market is low. That can mean higher returns and fewer ups and downs.
Now, most advisors tout the tax benefits of oil and gas well investing - and these tax breaks are very enticing - but another aspect is the strong ROI you’ll find from many of these projects. One of the big questions many accredited investors ask when looking at investing directly in oil and gas projects is; where are oil prices headed from here?
Oil Prices Are Only Half The Story
The oil price environment has been tough for a couple years; although, oil prices are showing signs of stabilizing. It’s been almost two years since oil traded at nearly $30 a barrel. With supply cuts and the rightsizing of drilling, oil prices have doubled.
Still, while it’s tough for individual oil and gas well drillers to manage oil prices - other than with hedging - accredited investors can benefit from increased ROI thanks to new drilling techniques and a management team that, well, knows what they’re doing.
When it comes to generating a strong ROI, Texas oil and gas production companies are able to boost the ROI for projects with strategic land choices and choosing the appropriate drilling technique, whether it be unconventional shale or conventional filed drilling.
Historically, oil and gas wells are able to generate outsized returns for investors. But this assumes that the oil and gas investment company has a strong management team.
Understanding The Oil And Gas ROI
For oil and gas investors, there’s more than stock prices and dividends to consider. Investors that have an active ownership in oil wells have greater upside potential, but also have a more vested stake in the inner workings of their investment. That is, there are many components that investors should consider when hoping to get the highest ROI.
When considering investing in oil wells, the biggest part is how efficiently and quickly the commodity can be extracted. When looking for the best ROI deal, investors should consider the technology and drilling techniques used. A capable management team is very important. It’s necessary to look for managers and leadership teams that know how to target wells that can produce n the shortest timeframe, which means they know how to set up infrastructure fast and effectively to get oil flowing as quickly as possible.
So, if you want the best ROI deal when it comes to selecting the best oil company to invest in, look for a proven manager.
These days, just investing in oil wells is only half the battle - yes, you’ll get the massive tax deductions, which includes the 15% of income that’s completely tax-free and you’ll get a large deduction for oil well expenses that can be used to offset your ordinary or other investment income. But finding the best ROI deal also means looking for opportunities where new drilling technology and techniques can be used to start generating money faster from your oil well investments.
Then, couple this with the tax breaks and your ROI - compared to that of investing in an oil and gas stocks - becomes even more attractive.
Stock market returns can be volatile for years. But with investing in oil wells, you can do a little due diligence to get the best ROI deal and then you’ll be set with years of passive income that also provides very beneficial tax deductions.
We look forward to speaking with you today and becoming your investment partner. Contact us today.