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How Lower Oil Prices Impact Investments and Profitability

by AOG Wealth Management

On December 1, U.S. West Texas Intermediate crude hit a three-year low as the market closed at $64.00, making it the lowest price since October 2011. The continuous decline over the past months is becoming a growing concern for some investors and entrepreneurs. Many are wondering about its effects on the profitability of the oil and gas industry.

At AOG, a wealth management firm in DC, we understand your concerns. To help you evaluate the price of oil on your investments, here is some information to consider:

When it comes to this industry, remember that oil and gas wells typically deliver “flush” production in the first five years. It may take about five and a half years for a business to recover the entire initial investment. Of course, it will vary depending on the price of oil and gas during the time of production. With the recent decline in prices, many companies are worried that they may not be able to sustain the costs of their drilling operations, especially those operating in difficult-to-drill areas of the country.

If you’re interested in investing in the industry but are worried about the current situation, know that declining prices often mean declining costs too. It can result in a domino effect. Lower oil prices may force some companies to stop operating in difficult-to-drill areas, which may lead to a drop in oil production. A decline in production could result in less demand for drilling rig rentals, labor and equipment leases. There is a significant chance that many companies may consider selling assets at lower rates. At this point, you may be able to get equipment and leases at more affordable prices. Because costs are lower, you may still end up with an attractive margin despite the lower oil prices.

Although it’s impossible to predict prices and demand, you may be able to reduce risks by spreading your investments across several years and among various programs. This way, you can be more confident with your decision.

If you need help with wealth management in DC, get in touch with AOG. Our specialists can help you understand the market and its risks so you make sound financial moves.

AOG Wealth Management offers investment advisory services offered through Kalos Management, Inc., 11525 Park Woods Circle,Alpharetta, Georgia 30005, (678) 356-1100. AOG Wealth Management is not an affiliate or subsidiary of Kalos Management, Inc.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Information has been obtained from a third party sources we consider reliable, but we do not guarantee the facts cited are accurate or complete. This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We may execute transactions in securities that may not be consistent with the report’s conclusions. Investors should consult their financial advisor on the strategy best for them. Past performance is no guarantee of future results.

Oil and gas exploration, development, and production activities inherently involve highly speculative activities in which results cannot be exactly predicted and which necessarily involve risk of loss of one’s entire investment. Investment in the partnership is suitable only for “accredited investors” within the meaning of Regulation D defined by the Securities and Exchange Commission under the Securities Act of 1933 and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in the partnership. All of the information furnished in connection with a partnership is derived through the use of scientific or other techniques associated with the oil and gas business, and, as such, should not be relied upon as statements of fact. Any reserve estimates, price calculations, price forecasts, exploration potential, predictions, or similar information contained in the material furnished in connection with a partnership are, or may well be, estimates only and may not be indicative of actual results. Legal and Tax professionals should be consulted before any investment is considered in a project.

Category: Blog, Info Articles