This is a project which is very risky but with satisfactory returns, these two products are currently the most demanded commodity in the world. This is because of their industrial use. Prices of these products are too high creating a lot of interest to investors to undertake such ventures. Irrespective of it being a lucrative business, security regulators have warned potential investors of possible oil and gas investments dangers and scam that exist.
Business who wish to grow and expand with go for long term projects while those business who want to make quick return on their capital invested they will go for the short term investments. There are several techniques that can be used to evaluate the viability of a project even before undertaking it.
Such techniques include present value technique. This method discounts future cash flows to present value and equates them with the initial cash outlay. A decision criterion in this technique is an investor is expected to select a project that has a positive net present value.
Another technique is payback period. Those investors who use this method consider the number of years it will take for them to recover the amount they invested. Decision criterion here is choosing a venture with short time period. This means that the project with big returns in initial years will definitely have short period.
The other technique to evaluate project viability is by use of internal rate of return. This method is easier to use and calculate and is also accurate given accurate information. Before undertaking such big venture, an investor should first carry out a study on the market trend, determine whether buying shares in an oil and gas company is the most profitable decision or participating directly in the drilling and refining process.
Direct participation may be lucrative due to heavy capital required. They should take caution not to drill in areas not tested and approved to have oil reserves else they risk undertaking a venture which will result to huge losses. There are risks involved in this venture, and one of them includes mechanical risk. The risks here range from human injuries as the drilling process involves a lot of mechanization to delays due to mechanical failures.
This venture may take any of following forms, partnership with limited liability, buying some shares in lease contracts and hence becoming a shareholder who is entitled to interest and lastly general partnership. Each category has different tax consequences and share liabilities differently too. General partnership lack limited liability and therefore the partners are personally liable, this means their properties can be used to recover any debt by the partner.
If cementing is not done properly is can leak gas or oil behind casing instead of it flowing smoothly inside the casing. Reservoirs sometimes will call for sand screening and use of specialized chemicals which can corrode pipes used especially if temperatures are too high. Another risk is reserve risk, the size of reservoir will ultimately determine the economic sense of such projects.
Business who wish to grow and expand with go for long term projects while those business who want to make quick return on their capital invested they will go for the short term investments. There are several techniques that can be used to evaluate the viability of a project even before undertaking it.
Such techniques include present value technique. This method discounts future cash flows to present value and equates them with the initial cash outlay. A decision criterion in this technique is an investor is expected to select a project that has a positive net present value.
Another technique is payback period. Those investors who use this method consider the number of years it will take for them to recover the amount they invested. Decision criterion here is choosing a venture with short time period. This means that the project with big returns in initial years will definitely have short period.
The other technique to evaluate project viability is by use of internal rate of return. This method is easier to use and calculate and is also accurate given accurate information. Before undertaking such big venture, an investor should first carry out a study on the market trend, determine whether buying shares in an oil and gas company is the most profitable decision or participating directly in the drilling and refining process.
Direct participation may be lucrative due to heavy capital required. They should take caution not to drill in areas not tested and approved to have oil reserves else they risk undertaking a venture which will result to huge losses. There are risks involved in this venture, and one of them includes mechanical risk. The risks here range from human injuries as the drilling process involves a lot of mechanization to delays due to mechanical failures.
This venture may take any of following forms, partnership with limited liability, buying some shares in lease contracts and hence becoming a shareholder who is entitled to interest and lastly general partnership. Each category has different tax consequences and share liabilities differently too. General partnership lack limited liability and therefore the partners are personally liable, this means their properties can be used to recover any debt by the partner.
If cementing is not done properly is can leak gas or oil behind casing instead of it flowing smoothly inside the casing. Reservoirs sometimes will call for sand screening and use of specialized chemicals which can corrode pipes used especially if temperatures are too high. Another risk is reserve risk, the size of reservoir will ultimately determine the economic sense of such projects.
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