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Oil and gas investing pdf

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We examine the top three oil and gas ETFs below. The figures below are as of Feb. The companies within the index are selected based on various investment merit criteria, including price and earnings momentum, quality, management action, and value. It includes petroleum refineries, companies that gather and process natural gas, and those that manufacture natural gas liquid. The fund follows a blended strategy of investing in a mix of growth and value stocks of various market capitalizations.

MPC , a petroleum refiner and transportation company. Securities in the index must also satisfy market cap, liquidity , and weighting concentration requirements. The ETF provides exposure to companies involved in natural gas exploration and production. It follows a blended strategy of investing in a mix of value and growth stocks across the market cap spectrum. The fund can act as a leveraged play on natural gas, providing investors significant returns when prices of the commodity rise.

But the ETF also is likely to experience significant volatility. The market-cap-weighted ETF provides exposure to companies engaged in the exploration, production, and distribution of oil and gas. Exploration and production companies receive the largest exposure, followed by companies involved in oil and gas refining, marketing, and transportation. The fund follows a blended strategy, investing in a mix of growth and value stocks of various market caps.

PXD , an oil and gas exploration and production company. The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy.

While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

ETF Database. Accessed Feb. First Trust. ETF News. Top ETFs. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. Part of. Best Stock ETFs. Part Of. Index-Based ETFs. Factor-Based ETFs. Tech Stock ETFs. No method has been developed yet to predict the oil price with precision. The price risk is another variable that investors have to factor in when evaluating their investment decision.

The shale gas revolution reduced the US dependence on gas imports; in fact, the US overtook Russia as the world largest producer of natural gas in Other countries are also attempting to replicate the US experience. As a result of the increasing supplies of natural gas in the US, the spot prices of natural gas fell by 56 percent in the North American market BP, Similarly, the redirection of LNG volumes to European and Asia-Pacific markets has drove down spot gas prices in those markets.

A low gas price environment does not support costly investments in the Arctic. But the net effect on gas prices will depend on the growth of both supply and demand. According to the IEA , natural gas will increase to 25 percent of the global energy mix by , overtaking coal to become the second largest fossil fuel after crude oil. Costs The Arctic is known to be a high cost province for both oil and gas exploration and production activities. ETSAP , p. Exploration costs include drilling and carrying out geologic and geophysical surveys.

Thomas et al argue that the most expensive dry well ever drilled to date is the dry hole Mukluk No. Figure 5 below illustrates the growing expenses of companies developing resources in the Prudhoe Bay Alaska. In many cases, building pipelines is not practical or feasible.

The only other alternative would be to build LNG terminals. Cost overruns and delays in projects coming on stream are also very likely. The Shtokman field was discovered in It has estimated gas reserves of tcf. However, until now the field remains undeveloped. The announced investment start up in was further delayed until Gronholt-Pedersen, As of , a total of fields have been discovered in the offshore Arctic region - 23 fields are producing just over half of these are in offshore Alaska in the Beaufort Sea and the Cook Inlet , while just 13 fields are either at the firm plan or under development stage and expected to come on stream by the middle of this decade.

The remaining offshore fields are still many years from production Kiernan, The other field, Goliat, is expected to deliver its first oil production in NPD, But according to Eni Norge , the field is estimated to have a short- life, and all petroleum activities are planned to be stopped over the period of - The exploitation of the Arctic hydrocarbon resources can be restrained because of the lack of transportation infrastructure and weather conditions.

According to Thomas et al. That is why expenditures are considered to be greater for remote fields and particularly for the Chukchi Sea. Due to the remote location of discoveries, the only transport options for the sector are LNG and oil tankers.

Such a cold weather requires the use of facilities which are able to work without interruptions in harsh conditions. Subsequently, authors like Halpern argue that many Arctic projects will be postponed by several decades even by due to technological challenges and export limitations.

The Fiscal Regime Unlike factors such as the resource base, the oil price and the cost structure, the fiscal regime is the key variable that is within government control to manage investment. Petroleum fiscal regimes are the principle mechanism for sharing hydrocarbon wealth between host governments and investors. They consist of a variety of tax instruments. Essentially, two basic and broad categories of agreements have developed over the years — the concessionary systems also known as Tax and Royalty regimes , predominant in the OECD countries and contractual arrangements typically favoured by developing countries Nakhle, In most oil producing countries using concessionary regime, the hydrocarbon reserves remain the property of the state until produced.

Companies take title to the produced oil at the wellhead and then pay the appropriate royalties and taxes. They are entitled to ownership of the production and can freely dispose of it. Under the typical contractual based systems, the oil company is appointed by the government as a contractor. The title to the hydrocarbons remain with the state, hence all production belongs to the government, while the company executes petroleum operations in accordance with the terms of the contract and operates at its own risk and expense under the control of the government.

In return, it is given a share of production i. In principle, the same economic outcome can be achieved under different regimes. What really matters is the tax rates and the combination and interaction of various tax instruments. The five littoral states apply a concessionary regime, although the fiscal terms differ as it can be seen from Table 1.

Russia has a hybrid system, where both concessionary and contractual arrangements can be found, but the former is the basis for all upstream licences. The normal formula for concessionary regimes is a combination of a royalty, a resource rent tax and income tax. There is no consensus, however, on what the ideal tax rates are ought to be.

Gas: rubles per cubic meters extracted zero for associated gas. Alaska In an attempt to encourage investment in its challenging oil and gas province, the Norwegian Government abolished royalty in Royalty is a simple tax; it is imposed on the amount or the value of the output. It also ensures a share of revenue for the government as soon as production commences. This is in contrast to profit-based taxes where the government obtains its first tranche of revenues only when the net cash flow begins to turn positive.

But royalty is regressive; it can render profitable projects unattractive on a post-tax basis. It has an upfront effect as it is paid as soon as production starts. It is imposed irrespective of the size of the field and it is equivalent to an increase in the resource extraction cost, affecting the depletion decision of the investor Nakhle, In many offshore environments royalty levels are typically in the percent range; in mature basins, like the North Sea, there is often no royalty at all.

High royalty rates may be acceptable to investors in low cost, high volume situations but in high cost environments, such as the Arctic, they can act as a serious deterrent to investment. In Canada, for instance, royalty rates are profit sensitive and vary on a sliding scale with the time from first production. Similarly, in Greenland, royalty is a profit-based tax, calculated from annual pre- take rate of return.

In Norway, before royalty was abolished, it was applied on a sliding scale, ranging from 8 to 16 percent, depending on production. Many oil producing countries impose a resource rent tax to capture the excess profits, or economic rent, from petroleum activities. Economic rent represents the surplus return above the value of the capital, labour and other factors of production employed to exploit the resource. A resource rent tax increases the progressivity of the fiscal regime and facilitates its stability.

With a resource rent tax, the regime becomes more responsive to changes in the profitability of projects. A resource rent tax can take different forms. In Norway, for instance, the SPT is applied on a flat rate of 50 percent and is not deductible for income tax purposes.

In Alaska, the PPT was introduced in and replaced the severance tax, where the tax rate was linked to field and well productivity. The PPT is levied at a rate of 25 percent but the tax rate increases with the oil price, reaching a maximum of 75 percent. Although no resource rent tax applies in Russia, Greenland and Canada, other fiscal and non fiscal instruments are imposed to ensure a certain level of government take.

The oil export duty rate is linked to the average Urals export oil price and varies between 0 percent and 65 percent. In Canada, biddable signature bonuses apply. The income tax is levied at a corporate rather than oil field level. In most countries, income tax allows current expenses, interest expense and historic cost depreciation to be deducted. The above tax instruments are the main headlines. Other tax and non-tax instruments also apply in various countries, and which tend to complicate the regime.

In Alaska, for instance, in addition to royalty, PPT and income tax, bonuses, rentals, property tax, and Hazardous Release Fund, also apply. Similarly, in Russia, bonuses, export duty, Value Added Tax, and land tax, among others, also apply on top of the MET and the income tax. Canada, Greenland and Norway have relatively simple regimes. Furthermore, Canada and Greenland have the lowest marginal government take.

In Canada, the Arctic region is one of the least active regions in the country in terms of exploration and development. In Greenland, as of September , no commercial volumes of oil or gas have been discovered yet. Norway imposes high marginal tax rates. But the Norwegian system, not only has been very stable, it is also one of the closest regimes to being neutral.

In a successful attempt to encourage exploration, the Norwegian Government introduced a new treatment of exploration costs in The tax value of exploration costs for each tax year loss is refunded in the following tax year. As such, companies without a tax paying position are able to fund exploration activities much more easily.

The measure puts a greater risk on the Government. However, the attitude of the investor depends not only on the level of tax, but also on the extent to which the government shares projects risk. Fiscal and non fiscal instruments such as bonus and government participation that have upfront effect normally increase investment risk.

While Russia seems to have some differentiated treatments for oil and gas, in concessionary regimes, normally, the same fiscal regime applies to both oil and gas. This however can be problematic especially when oil and gas prices move in opposite directions. The issue of introducing a separate PPT system for gas in Alaska has been already raised. Russia and Norway have very active state oil and gas companies especially in the Arctic region; Gazprom and Rosneft in Russia and StatoilHydro in Norway.

All the five littoral states have expressed interest in exploiting the oil and gas riches of the Arctic. The fiscal regime will be among the key tools that those governments will use to achieve their targets. As such, tax reliefs are expected to be introduced. Alaska is facing the challenge of a declining production. More investment will be required to mitigate that decline.

The Russian fiscal system has been simplified and lower income tax rate as well as royalty incentives were introduced, particularly for challenging projects. Conclusion The paper analyses the key factors that influence investment decision in the Arctic.

It focuses, in particular, on the resource base of the region, oil and gas prices, costs and fiscal regimes. Taken together, along various related risks, these factors shape the risk-reward balance that investors seek to achieve. The Arctic region is in its early stages of development. Its petroleum potential remains uncertain. Very large estimates of the oil and gas resource base in the Northern territory have been given by established, reliable sources.

Furthermore, a central distinction is between how much oil and gas is in place, how much can be technically recovered, and how much can be economically recovered. Costs are high; this is due to a lack of infrastructure, as well as a harsh operating environment, remoteness and seasonal access. The harsh climatic conditions translate into high capital and operating costs.

Any exploration activity in the region would require innovative technologies to deal with extreme weather conditions and remoteness as well as with the delicate natural environment. Transport and access to export routes also impose a significant challenge. This is particulalry true for gas, where the main and in many cases the only feasible transport option is through LNG.

Another challenge for gas is the shale gas revolution which has put some downwards pressure on spot gas prices and has reduced the sense of urgency towards achieving greater security of supply. Despite those challenges, international oil companies are still investing billions of US dollars in expanding their asset base in the region. Each of the Arctic littoral states has also shown interest in increasing investment in their Northern territories.

Access to opportunities is relatively open across much of the Arctic. Still, for the Arctic to become a major oil and gas supplier is rather a long term prospect. References Babusiaux, D. Banfi, S. Coomber, S. Duval, C. Goldsworhy, B.

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How to invest in oil wells - a simple guide to investing in Oil Gas Wells

If you are asked to invest in a private oil and gas offering, you should first consider and investigate who exactly is asking you to invest and think carefully. PDF | This paper discusses recent trends in investment in the oil sector, amid new challenges for national and international oil companies in an. From a diversification perspective, oil and gas investments have long provided investor portfolios with an effective diversifier against overall economic ebbs.