Any of you familiar with investing in oil well drilling?

Question

Have any of you or do you know anyone that invested in a company drilling for oil and struck oil? We hear all the time that people are getting rich in oil but do they profit from investing? OR owning the land where oil is found? Or the company doing the drilling? Anyone have any hard facts on this? Thanks!

Answer 1

There is an ETF ..OIH...which tracks the drillers, pipelines, etc. Make yourself a watchlist or portfolio on yahoo/finance. and see how it moves in a few months time. Compare it to the price of oil...you'll be amazed that at sometimes the drillers just keep making money no matter if oil gains or falls!!

Answer 2

Financing of oil and gas drilling, for the smaller companies anyway, is often done with limited partnerships.  The oil company, sometimes consisting of just one person or a few people, will lease mineral rights and then raise money to drill through limited partnerships.  Then they lease a drilling rig from a drilling company.  Many of the people who invest in these are looking for a tax write off.  But if they hit oil or natural gas, which often both come from the same well, they make money off of it, after expenses.  The investors in a well have what is called a working interest.  They have to pay all the expenses.  The owners of the mineral rights have a royalty interest.  They get paid for leasing the mineral rights on a per acre bases and a share of the oil or gas, free of expenses.  A royalty interest is about 1/8 or 3/16.  There are a lot of small time companies in this business.  Especially when oil and natural gas prices are high.