Introduction: Real Estate Oil Drilling Investment
Today’s post focuses on an intriguing yet under-explored component of real estate investing: oil and gas. Victor Menasce shares his personal experience delving into the world of oil drilling in the backwoods of Kentucky, providing insight and valuable lessons into this risky venture.
A Primer on the Oil Industry
On initiating any conversation regarding oil industry investments, Victor Menasce emphasizes the reality that we are primarily discussing the upstream segment. This component of the oil industry is associated with exploration and drilling. Over 8,000 small, family-run oil companies, usually consisting of fewer than 20 employees, make up a majority of oil and gas exploration and upstream work in the United States.
The Basics of Oil Well Investments
At the most fundamental level, oil and gas investing starts with mineral rights. These mineral rights are regularly separated from the land and either sold or leased as separate assets. This arrangement leads to the division of profits into three categories: royalties for the lease holder, the working interest for the operator drilling and operating the well, and the non-working interest for the investors.
The Story of a Kentucky Oil Investment
Victor Menasce recounts an instance where he was invovled in a property where an oil lease had been arranged in the backwoods of Kentucky. However, despite some initial promising signs and the oil prices at that time making the investment economically promising, technical issues and challenges resulted in the well being abandoned and a significant loss for the investors.
Lessons Learned and Future Advice
Victor Menasce shares this story to highlight the risks involved in even simple oil well drilling. Technical risks can cause a well to fail, and it’s vital to be aware of these possibilities when investing in oil wells. The experience led to the unfortunate loss of investments for him and other stakeholders. However, it also served as a vital learning experience regarding the inherent risks present in the world of oil drilling.
Conclusion: Real Estate vs. Oil Drilling Investment
Menasce emphasizes his belief that real estate investment, despite having its unique difficulties and risks, remains a safer and more reliable investment opportunity as compared to oil and gas. Although the potential returns on oil drilling investments can be very enticing, the high degree of uncertainty and potential for complete investment loss should be considered carefully.
Though this episode surely provides deep insights about the oil industry, it acts as a reminder that the time-tested nature of real estate continues to be the ideal investment option. With the ability to create sustainable wealth, real estate investment allows for resilience and the inherent ability to navigate and scale through the frequently unpredictable investment landscape. As Victor Menasce puts it, stick to real estate investing.
