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3 Reasons to Invest In Oil and Gas

Apr 1, 2008
With the real estate market in a slump, many investors are looking into new investment opportunities. Oil and gas investing certainly isn't a new opportunity, but one that many traditional investors tend to overlook. Investing in oil and gas can be one of the most exciting and lucrative ways to earn a significant return on investment. There are many reasons why smart investors choose to invest their money in oil and gas today:

The Industry is Stronger Than It Has Been in the Last 150 Years:
Today's U.S. oil and gas market hasn't been this exciting or profitable since the early 20th century. With the natural gas market booming, the growing global demand for energy, and a shrinking supply, today's oil and gas market presents exciting opportunity for investors.

Many industry experts predict that by the year 2030, worldwide consumption of oil and gas will exceed 115 million barrels per day - 30 million barrels more than are consumed daily today. At the same time, the large r companies have reduced their budget for domestic oil and gas drilling drastically. Big companies have turned their focus to deep water drilling projects leaving vast amounts of untapped wells for smaller oil and gas companies.

Tax Write Offs and Incentives:
Much of the cost associated with extracting oil is in the development of the land and the prospecting of oil fields. Generally, the more work that is done in development and prospecting, the more likely the chances of striking oil. Government understands that this preliminary process is a necessary part of the oil and gas development process.

Tax laws are written to stimulate private sector oil and gas investing during the development phase. Generally, investors can deduct the expenses associated with drilling a well against ordinary (not passive) income and with most of the deductions occurring in the year of the investment. These tax returns are available whether the well produces or not.

The Growing Need:
The need and demand for domestic oil and gas is rising. The Bush administration has placed priority on increasing domestic oil and gas production by maintaining the current tax breaks for investment in domestic drilling. Currently, 25 percent of the domestically produced oil comes from Texas' Permian Basin, making Texas oil drilling companies among the most popular focus of oil and gas investors.

Investment Risks:
Like any investment, an investment in oil and gas does not necessarily mean a guaranteed payout. Many factors determine the likelihood of an oil and gas drilling company's chances of extracting oil. Many successful companies conduct through investigative research on their prospects with highly sophisticated seismograph technology that can detect traps that may contain oil more than 1 mile below the earth's surface. Although there is always the risk of a dry hole, oil and gas drilling companies that take a more calculated approach tend to have a higher likelihood of striking oil. Before investing in any company, it is essential to research the credentials and technology of the company and gauge your own level of risk-taking comfort.
About the Author
Author is a freelance copywriter. For more information on Texas oil drilling and oil and gas investments visit http://www.TGOPermian.com/ .
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