I was reading Loral Langemeier a few years back. She’s a big advocate of direct investing in business opportunities like self storage, rental real estate and oil wells.
The idea of buying an oil well got me intrigued. So I started looking around on-line. Some small wells can be had for around $200,000 to $1,000,000. This type of business works based on how much oil/natural gas, etc. you can get out of the ground. The sizzle is that wells can be extremely profitable, especially when gas prices are high.
Since I don’t have $200,000 to $1,000,000 in cash lying around, this is probably going to be a project for 5 to 10 years down the road, but I’m definitely interested. It looks like a great money making opportunity that could allow one to significantly build their wealth. In case you’re also interested, here is where to buy a well, and some alternatives if you can’t afford to buy one directly.
Where To Buy A Well And What To Consider
Most wells appear to be sold by brokers, so if you want to cruise some of the listings check them out here.
The only book I’ve been able to find on buying oil wells is Investing In Oil Wells by Nick Slavin. It retails for $12.99, but if you are going to drop $5,000 to $20,000 on fractional ownership in a well, $12.99 and some education is probably worth it. You can get the book here.
There are some factors to consider. Oil and gas wells are capital intensive – they costs a lot to operate and maintain. Oil is also heavily regulated so when a well stops producing, you need to cap it to prevent damaging the environment. Capping is extremely expensive – costing between $20,000 and $80,0000. So, they cost a lot to drill, maintain and close.
Also, wells are risky. So, what a lot of investors do to avoid risk is to buy several wells. This of course, requires a lot more capital and management time. For example, buying several wells at $200,000 each could cost millions of dollars.
Alternatives To Direct Ownership
Since the costs of owning wells directly is prohibitive for most investors, here are some alternatives if you want direct exposure to oil and gas:
- Buy Royalties: Royalties are basically payments made to individuals for the right to use their natural resources. What often happens is an oil company will agree to pay a landowner a given payment per barrel of oil or gas extracted. For example, if a landowners property produces 100 barrels of oil a month and the royalty agreement between the extraction company and the landowner says the owner gets $2 per month, the landowner would get 100 x $2, or $200 per month. Royalties can be bought and sold. If you want to get some, Energynet is a good place to find royalties to buy (here).
- Buy Oil and Gas Stocks: A simple and straightforward option is to buy the common stock of oil and gas companies. Owning shares of major companies like Exxon (XOM), ConocoPhillips (COP) or Phillips 66 (PSX) is a good way to get exposure to oil wells. Similarly, exchange traded funds (ETFs) that focus on on the oil industry are good ways to get exposure.
Here Are More Great Reads On Oil Wells From Dinks Finance:
- How to value oil well investments with Charlie Rushton: Part 1
- How to value oil well investments with Charlie Rushton: Part 2
- How to invest in oil wells without any risk
- The call of black gold – Nuts and bolts on how to buy an oil well
- Things to know before investing in oil wells
Lastly, here is a good reddit thread on some of the ins and outs of buying oil wells.
