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.
Those who want to directly be involved in drilling of gas and oil it is recommendable since this is a lucrative venture but they ought to be cautious. This is because such projects require heavy cash outlays and one cannot afford to drill a well then realize later it has no enough reserves.
This means their prices keeps on fluctuating with time, they are never constant. Even if one strikes clean natural gas or oil they will have to sell them at prevailing market prices. This is a challenge because an investor may have done their evaluation on the project viability with certain prices without factoring out any price changes.
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.
Those who want to directly be involved in drilling of gas and oil it is recommendable since this is a lucrative venture but they ought to be cautious. This is because such projects require heavy cash outlays and one cannot afford to drill a well then realize later it has no enough reserves.
This means their prices keeps on fluctuating with time, they are never constant. Even if one strikes clean natural gas or oil they will have to sell them at prevailing market prices. This is a challenge because an investor may have done their evaluation on the project viability with certain prices without factoring out any price changes.
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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