In light of recent stock market volatility and the current low interest rate environment, accredited investors are seeking opportunities to deploy capital outside the stock and bond markets. Yet many accredited investors avoid private oil and gas deals, despite the opportunity to make solid returns with reputable companies.
Too often, oil and gas deals are pitched to affluent investors with no consideration of their risk tolerance or understanding of the industry. Investors complain too much emphasis is placed on potential returns with too little explanation of risks. Some oil and gas companies seem to forget potential investors are typically not oil and gas insiders. These companies make the mistake of assuming potential investors have an understanding of oil and gas production and terminology, and may not take the time to explain the project properly. Adding to the problem, companies feel a sense of urgency to start projects and may rush investors to make a decision without seeking legal or tax advice – leaving investors vulnerable to unexpected consequences down the road.
Many private oil and gas opportunities are structured with an upfront fee. That means the company makes most of its profit by just placing investors’ money in the deal. Not only does this mean fewer of each investor’s dollars go into the deal than in other structures, it means the offering company’s motivation is to fill the deal fast for fast profit. This structure provides no incentive for the offering company to stay engaged with investors, or to offer deals that are more likely to provide better potential returns or production.
The front-end fee structure contributes to another complaint: lack of communication. Sadly, investors often find companies less willing to return phone calls or answer questions once they’ve received a check. This tends to get worse over time – particularly if there are problems with the project. Naturally when things are going well in the oil patch, companies can’t wait to tell investors. Happy investors are likely to re-invest. The reality is an array of problems, ranging from equipment repairs to dry holes, can arise and should be addressed with investors. However, many investors have found companies go silent when there are problems – particularly when they have downplayed the risks when soliciting investors.
Rather than focusing on making respectable returns in proven fields, many companies are looking to make a killing in exploratory or wildcat wells. The allure of making huge profits by out-maneuvering the rest of the players in the game sometimes eclipses the risk of loss, and some companies are more than happy to capitalize on an investor’s dream of hitting it big – allowing them to invest more capital and take on more risk than may be advisable. More often than not, this results in disappointing loss of venture capital and fosters negative attitudes about the oil and gas industry as a whole.
In the Internet age, investors are accustomed to having information at their fingertips. With online access to brokerage accounts, banking, and investment news, we can get up to the minute updates on account balances, asset values, and industry happenings. However, out in the oil patch, people are focused on doing a job and doing it right – not on feeding information into the latest technology. Too many companies fail to bridge this gap by providing their investors access to important updates pertaining to project. As a result, investors have less confidence in the performance – or even the legitimacy – of oil and gas investments.
Our core principles address each of the common problems investors encounter with other oil and gas companies. Being a faith-based organization, we operate with the utmost integrity in all of our business dealings. Rather than taking big risks with investors’ hard-earned money in the hopes that they pay off, we focus on earning profits in proven fields while investing right alongside our capital partners. Our deals are industry-grade opportunities that are structured to favor the investor in revenue sharing that directly results in higher ROI potential.
At Aresco, we educate prospective partners, communicate effectively, and allow investors time to evaluate each project. As part of our commitment to communication, we have established our Partners Portal to provide instant access to important updates on all aspects of each of our projects.
We invite you to contact us today to learn more about what sets us apart from other companies.
Learn more about private investments in the oil and gas industry in the gulf coast region.
Learn more about the tax advantages of oil and gas investing.