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Three Key Factors to Oil and Gas Investing

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Clarke Energy Fund Management

The first step for oil and gas Investors is deciding which oil and gas equities to put their hard-earned money into. While some investors will concentrate on oil and gas stocks that offer better returns, such as oil sand companies and United States oil stocks, we believe that you should start by evaluating the following three crucial factors: 

 

1) Is the price of oil stock too high?

 

You should probably start by asking yourself this as many oil stocks are more hype than true worth. The oil stock price-earnings ratio is a reliable metric for determining an oil stock's value. If the price-earnings ratio is more than 20, we advise you to look into the reasons behind the oil stocks' high price-earnings ratio. Try to ascertain the effect these occurrences will have on the oil stocks' earnings if they are the result of an ambitious expansion strategy, such as a recent land purchase or a sizable drilling programme that is to be undertaken in the future. Many times, the upcoming event won't have an effect on the oil stock and Oil Well Investment Opportunities

 

2) Comparing Trust Units and Common Shares 

 

There are numerous oil and gas Investor equities that have been transformed into trust units. The primary goal of converting these oil equities into trust units is to reduce and postpone unitholders' tax liability. However, the distributions that these oil stocks (trust units) make the demand for a sizeable quantity of cash flow, which limits the ability of the particular oil stock to grow. So, if you're searching for an oil stock that can give you consistent cash flow, a trust unit oil stock is your best bet. However, you should avoid buying oil stocks that are trust units if you want to hold a stock in your portfolio that has a strong potential for growth. This is so that shareholders can continue to reinvest their hard-earned money in the company's capital programme, as typical public company shares typically do not pay out sizable dividends to shareholders. Purchasing land, mineral rights, drilling initiatives, and other oil and gas Investors' capital programmes are all more likely to increase shareholder value than just giving these monies to unitholders.  

 

3) Gasoline instead of oil 

 

Investors should be aware of how much of their stake in oil and gas stocks are made up of natural gas as opposed to oil. This is significant since now probably isn't the best time to invest in an oil and gas company with a natural gas emphasis if the price of natural gas is at an all-time high. Nevertheless, depending on what commodity experts predict will happen to the price of natural gas in the upcoming months or years, now may be a good time to think about selling? The same is true for oil stocks, albeit in our opinion the price of oil is less volatile because we doubt that it would decrease in price by 50%. In contrast, it is simple to cut the cost of natural gas by 50% in a given year. Do not worry too much about Oil and Gas Tax Deductions if you intend to hold your oil and gas investment opportunities for a considerable amount of time because they should rise in line with inflation over a considerable amount of time. Commodity prices become quite essential if you are buying and selling oil and gas equities frequently since you might earn a sizable profit in a short amount of time. You will be well on your road to making black gold by taking into account the three aforementioned variables. All oil and gas investors should keep an eye on insider trading by publicly traded oil and gas companies.

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