Myth #1: You could be able to lose all your money.Truth It all depends on how you examine your finances. The reality is that the money you invest in the oil industry differs from the money you invest in the stock market, or purchase of real property. If someone invests in the stock market, or the acquisition of property, they invest using “post” tax dollars. This means they are investing the funds they have leftover after having paid the taxes due on the earnings to invest in the property. When someone invests in the drilling of an oil well, they receive a higher rate of treatment by the federal government, in the form of intangible and tangible allowances for investment. This means that if you put $25,000.00 in the oil field drilling, you could write off or subtract the amount intangible of your investment from your gross annual income (from 60% – 75% of the amount you invested could be deducted against any personal earning) of the year in which you invested in. It is essentially impossible to lose your entire investment because it wasn’t all your money at all. The government was bound to receive a percentage of your income , regardless of whether you put your money into one of the wells or not. In general, they would receive between 35% and 40% of the earnings regardless. When you make a purchase into an oil well, you are actually investing some of your cash as well as a portion of the state’s funds.
Myth #2: David Goodnight suggests It is more profitable to buy shares in Exxon or another major oil company through stock broker than put money into the oil field.
Truth : When you purchase stocks from a broker or on the internet, you’re buying a small piece of a massive corporation that has millions of pieces. It is a bit of comfort knowing that it’s an extremely large company with assets across the globe However, it also has a massive expense to run. When you buy stock in the size of a corporation with the huge overhead, it requires an extensive amount of movement within the market to earn a significant profit. You are also purchasing the stock using “post” tax dollars so you will only be able to invest between 60% and 70 percent of money that you have earned. You’ve already lost an enormous portion of your purchasing power prior to you even begin. If you invest in an oil well, it’s known as “Direct Participation” and that is what happens. You invest directly into a single oil well or a set or oil wells. Your investment is focussed on oil production, not the operation of a large company. Your investment will stand a possibility of growing more quickly and bigger by focusing it rather than thrown into a massive group that can be used to operate the machinery.
Myth #3 – The majority of oil wells are dry hole. There is oil only in about one out of 10 wells dug.
Truth is that there are different types of drilling that can be used when you are looking for oil. One type that is most likely to be heard of and have encountered can be described as “Wildcatting”. It was a topic that was discussed about in TV shows like Dallas as well as other movies concerning oil wells. In these movies, the person goes to deep space, and when he’s down to his last dollar, he comes across a gusher from the well, it explodes into the air, and everyone has a happy life following the same scenario as in Beverly Hillbillies. In such situations, when drilling is into the middle of nowhere to be found oil field, the odds of having a dry hole are more likely to be around 25 percent to have a dry well.
Another kind of drilling and has a higher chance of success is “Developmental Drilling”. When you do the development drilling, you’re drilling near or close an existing oil well, or oil fields. This kind of drilling is extremely successful and may be 100% successful rate. When you are investing in an oil well, be sure to determine if the investment is a wildcat or development drilling project. If you’re investing in a development drilling project , the chances of finding oil and making profits are excellent.
Myth #4: If someone offers you the chance to invest in an oil well, it’s probably an enticement.
Truth – The most effective way to determine whether you’re getting profitable option for investing is to conduct the study. This is the reason why most investors buy investments and stocks through a brokerage house or an online company they’ve been told about, since they’re not really keen to conduct the necessary study. An investment advisor will ask the client about what their risk tolerance is and will take their money and invest it on their behalf. Minimal risk. Low return.
If you are considering investing in an oil well, make sure you do the investigation. An oil exploration and drilling company will take you to the drilling location and discuss the dangers to you in person. They will let you learn what the geologist has declare regarding whether the well is likely in the commercial zone or not in his judgment. The legitimate oil companies aren’t afraid to speak with the investor looking to know more about the drilling process as wells for oil production. They are open to questions and suggestions and allow you to connect directly with the people who make the decisions regarding investment in oil wells and, in turn, increase your knowledge about the industry, and decreasing the risk.
Myth #5: We know that the sole reason to invest in the oil field is that they are aware that it’s not likely to turn out as a great well.
Truth – If someone truly knew the amount of crude oil an oil field could produce before drilling it, are you sure they would ask investors to put their money into it? No one knows. It is true that nobody is aware of how much an oil well is likely to generate. David Goodnight says If a project is based on drilling for development, it is simpler to have an idea and an approximate range, but no one really knows what an oil well will produce. Each oil well is different. They could be across from each other but completely different. This is the reason why oil companies have a share of the wealth as well as the risk of drilling. Because of the unpredictability. Even the biggest companies around the globe such as Exxon, Shell or BP are at risk of developing new projects, as they are aware there’s an unknown aspect when drilling oil wells . it is best to have an element of a large number of oil wells rather than having all your eggs in one basket with only an oil field.