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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.
To realize this goals such companies can undertake this ventures. If a firm is not financially stable it can undertake short term investment and also if it is financially sound it can try long term projects. Criteria for decision making can vary from company to another depending on their evaluation techniques. Some of techniques that can be used include payback periods, net present value and rate of return.
Some of risk facing this industry are reserve risk, this risk involve not striking a big enough reservoir to meet your demands. Before starting drilling process first carry out a series of tests on the soil to determine or predict with reasonable accuracy the size of reservoir to expect. Another challenge is price risk, the prices of gas and oil are state controlled or sometimes left to market demand and supply forces to set prices.
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.
This resulting to project being over valued since the market prices then may not be the same prices now. Another challenge with such projects is structure of your deal. If you are getting into partnership you need to strike a deal that will not burden you or expose you to a lot of risk than the other partners. You should share risks proportionally according to capital contributed. One should not agree to bear all the direct costs alone.
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.
To realize this goals such companies can undertake this ventures. If a firm is not financially stable it can undertake short term investment and also if it is financially sound it can try long term projects. Criteria for decision making can vary from company to another depending on their evaluation techniques. Some of techniques that can be used include payback periods, net present value and rate of return.
Some of risk facing this industry are reserve risk, this risk involve not striking a big enough reservoir to meet your demands. Before starting drilling process first carry out a series of tests on the soil to determine or predict with reasonable accuracy the size of reservoir to expect. Another challenge is price risk, the prices of gas and oil are state controlled or sometimes left to market demand and supply forces to set prices.
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.
This resulting to project being over valued since the market prices then may not be the same prices now. Another challenge with such projects is structure of your deal. If you are getting into partnership you need to strike a deal that will not burden you or expose you to a lot of risk than the other partners. You should share risks proportionally according to capital contributed. One should not agree to bear all the direct costs alone.
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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