How to Invest in Gas & Oil Wells

Investing in oil and gas wells is a common strategy among individuals who are looking for a tax-deferred investment. This refers to money or income that a person invests in another investment vehicle that would have otherwise gone to the government. Though you can also avoid paying such a large amount of taxes by donating to charity, these tax-deferred investments are, by their very definition, investments, and can therefore make you money. Oil and gas wells are one such popular investment vehicle. Just know what you're getting into and who you're investing in.

Things You'll Need

• Accreditation as a Qualified Investor Investment Prospectus Due diligence report

Instructions

1. Determine whether you want to invest in stocks from large, public companies or want a share in the smaller, private businesses. Then determine what your investment strategy is, noting your expectation of profits and the level of risk you're willing to take. Naturally, the more risk you take the higher your profits can potentially be, but, of course, you're also risking more money. Investments that require minimal risk usually also produce minimal profits.

2. Look for oil and driling companies that have a long history, stable finances, diversification and risk management. You can usually assess these qualities by requesting a due diligence report from any company you're interested in.

3. Find a drilling company that you want to invest in and fill out their prospectus or query form either online or via mail. Investors must qualify as an Accredited Investor before they are allowed to invest in oil and gas. To read more about Accredited Investors see Resources.

4. Make sure that a licensed professional, such as an engineer or petroleum official is used to appraise the net value of your investment. During this time an exit strategy should also be established, to ensure that liquidity will occur during the holding period.

5. Do a few simple Internet searches on the drilling company and location of the wells before you plunk any money down. You should do this whether you feel confident that the company is a valid offerer or not.

6. Contact state regulatory agencies to verify the legitimacy of the wells before you invest in them. The agency should be able to provide you with the driling company's reputation and history. If you find that the drilling company is invalid or still have suspicions about it, contact the Securities and Exchange Commission's Office of Investor Education and Advocacy at 100 F Street, N.E., Washington, D.C. 20549.

7. Remember that no investment is guaranteed. Oil and gas drilling is done on a speculative basis, and could therefore produce significant profits or significant losses. Remember, too, that the prices of gas and oil have been fairly unpredictable in recent history.

Tips & Warnings

• Consult an investment professional if you are unsure about your investment strategies.

Resources

• Read this Article in Spanish
• Securities Exchange Commission