Oil and Gas Investments: Diversification
| Well | % ROI | Gross Revenue |
|---|---|---|
| 1 | 257% | $38,550 |
| 2 | 0% | $0 |
| 3 | 0% | $0 |
| 4 | 405% | $60,750 |
| 5 | 362% | $54,300 |
| 6 | 1200% | $180,000 |
| 7 | 0% | $0 |
| 8 | 227% | $34,050 |
| Total Returns: | 306% | $367,650 |
*This is a theoretical scenario based on a $15,000 investment per well. Actual results may vary substantially either positively or negatively from those projected.
For qualified individuals, the high-risk, high-reward nature of the oil and gas industry demands thoughtful consideration about where and how to participate. Finding the right mix is the key, and diversification is the decisive factor.
Dividing an investment between several wells is one of the primary methods used to protect capital. Many investors agree that it is important to distribute risk among several wells and also to disperse investments along different degrees of risk/return scenarios. For example, a good mix might be several low-risk, developmental wells, a few medium depth wells that have higher upside potential, and one or two deep, high-impact wells that have the ability to return multiples on original capital contribution.
The offsetting table clearly demonstrates how a well-diversified portfolio can produce favorable results. It illustrates how participating in eight wells can yield excellent returns, even if three wells are dry holes and only one well is an excellent producer.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH INVESTING IN OIL AND GAS VENTURES. THE ABOVE INFORMATION IS FOR GENERAL PURPOSES ONLY AND IS NOT A SOLICITATION TO BUY OR AN OFFER TO SELL ANY SECURITIES. ANY SUCH SOLICITATION OR OFFER WILL ONLY BE MADE THROUGH A PRIVATE PLACEMENT MEMORANDUM ACCOMPLISHED IN ACCORDANCE WITH SEC REGULATION D, RULE 506. IN ADDITION, THE AFOREMENTIONED GENERAL INFORMATION IS NOT INTENTED TO BE INDIVIDUAL TAX ADVICE. CONSULT YOUR PERSONAL TAX ADVISOR CONCERNING THE CURRENT TAX LAWS AND THEIR APPLICABILITY AND EFFECT ON YOUR PERSONAL TAX SITUATION.