[Posted on December 15, 2015 by Michael L. F. Slavin]
Trying to get into oil investing, but not quite sure how to separate a sound investment from a bad one? On the surface, they might seem the same. After all, much of what makes one investment a success and another a failure comes down to details—who has better employees, who cares more about making the right move for their investors, who thinks long-term instead of short-term. Learning the signs to look for that indicate a future success versus a future failure is very important—here are nine good signs to look for as you get started.
The first thing you should look for is whether or not the personnel you speak with know what they’re doing. A representative of any sound firm will be able to communicate a lot about the quality of the oil investing opportunity in front of you. If you’re a beginning energy investor, and you don’t get the feeling the people you speak with know significantly more about the process than you do, be worried. What you want is clear, confident, quick answers to any questions you may have—the sort of depth and breadth of knowledge that indicates real understanding and experience, not someone trying to gamble on a get-rich-quick scheme with other people’s money. If you hear a myth, move along.
Getting in contact with someone you’ve invested with should never be a chore. Nor should getting clear, easily understood answers out of those people once you reach them. A company full of competent personnel; with a good project in its hands, isn’t going to hedge, dodge investors, or otherwise build barriers to communication. They’ll be glad to take your questions, keep you informed, and get back to doing their jobs right.
If you’re looking at an investment opportunity, and it’s trying to convince you that investing will be like winning the lottery without all that pesky risk, move on. It may not get you as excited to invest, but seeing a company share realistic expectations in its promotional materials should go a long way towards securing your trust in the investment. Bad investments say ‘our methods are perfect, and will make you money’. A sound investment will admit, ‘even likely wells sometimes turn up dry’. Pay attention to whether you’re being informed or bamboozled on expectations, and you’ll spot the best investments quite handily.
While not everything is going to be available to investors, the data that should be available should never be a pain to get ahold of. Confident, competent companies gladly share the information they have at hand with investors, because they have nothing to hide—the data will only show that they’re doing everything correctly, that they’re doing their best to turn your investment into profits everyone can enjoy. Learn to compare transparency across different investments, and you’ll gain insight into their quality quite quickly.
History of success.
Of course, a history of success works wonders for informing you of an investment’s quality. While there’s always the occasional hot newcomer worthy of your investment; for the most part, the successful projects come from old hands—even if the company is new, there’s probably an experienced hand at the till. Do your research, and find out what the company and the executives have been up to in the past.
Attention to detail.
Details matter. When you ask about the little things, matters of operations and low-level tactical decisions, do you get blank stares, or do you get thorough answers which show an impressive attention to detail? In the face of ignorance, does the person you are speaking to show a willingness to find out the answer and get back to you promptly? Learn which details matter to the project’s you’re interested in, and start following up on them. Your oil investing game will grow by leaps and bounds.
Clear plans of action.
Oil markets may be volatile, but the strategies companies use to turn profits aren’t. Make sure you’re working with a company which knows how to plan for the long-term, instead of making short-sighted decisions which please investors today and empty their pockets tomorrow. A strong strategy plans for projects years down the line and has a vision of where the company will be in a decade—these are the sorts of things you want to see in an investment.
Investment opportunities, not gambles.
Some people turn profits from high risk, high reward projects. Someone has to invest in wildcats, but this is best left to the gamblers in investor clothes—a real investment isn’t risk-free, but it should be something based on thorough research, a sound plan, and complete knowledge. Developmental wells and similar investments are true investments, where competence plays the biggest role. Think of it as the difference between roulette and poker—both gambling, but one has much more room for skill to play its role.
Modernized tools and equipment.
Old equipment, dated technologies, and being unfamiliar with the latest methodologies are major red flags in any industry. So don’t forget to familiarize yourself with what technologies and techniques should be backing a modern oil investment—then ask plenty of questions, fueled by your newfound knowledge. This is an ongoing process; you can’t learn about the tools one time and forget about it. If you want to spot the best potential investments, oil investing demands a degree of homework,
So there you have it—nine things every oil investor should look for in a sound investment. These aren’t a silver bullet or a path to guaranteed profits, but by working exclusively with companies which meet this criteria, you’re far more likely to come out ahead than you would be going in blind based on an appealing marketing campaign. Pay attention, and you’ll give your luck a lot of assistance.