With oil selling at a record high, many people are becoming interested in oil and gas investments. Before investors get too excited about the prospects, though, they should be aware that the industry isn’t all sunshine and daisies. Investing in oil and gas comes with many risks, including the possibility that wells will come up completely dry and all investment funds will be lost.
In addition, many of the companies out there touting their investment opportunities are poorly run and likely to be out of business sooner rather than later, or they are flat out scams. If you are seriously interested in oil and gas investments make sure that A) you don’t invest more then you are willing and able to lose and B) You complete extensive due diligence on the company and their investment opportunity.
Some common scams the SEC cautions against are:
“Can’t Miss Wells.” They might say they posses some amazing new technology that is a sure fire bet to find oil, or they have some inside beat on the location that no one else has. Prospecting for oil is no sure thing; be wary of anyone who says otherwise.
“Unsolicited Materials.” If you are receiving random materials trying to get you to invest in oil and gas projects, chances are it is a scam. The truth of the matter is these investments are typically reserved for accredited investors and this type of solicitation is prohibited.
For the rest of the SEC red flags check their website.
The oil and gas industry can be complicated and the risks involved are not always easily understood. Investors who are new to the industry would be wise to work with a registered oil and gas broker/dealer who can guide them through their investment options. They will also be able to match investors with a reputable company that offers an investment suitable for the investor's risk and reward criteria. For more information on investing in oil and gas read our article: oil and gas investments.