The first step in oil and gas investing is to determine which oil and gas stocks you should invest your hard-earned cash in. Some will concentrate on oil and gas stocks that offer higher returns. However, you should start by looking at the following key factors:
This is the most important question to ask yourself, as many oil stocks are hyped more than they actually have. The oil stock's price-earnings ratio is a good indicator of oil stocks' value. You can investigate the reason why the oil stocks' price-earnings rate is higher than 20.
It could be due to aggressive growth strategies, such as land acquisition or a large drilling program that will take place in the near future. It also helps to find the effect of these events on oil and gas investment earnings. The impact of future events on oil stocks will often not be as expected by investors in many cases.
A significant number of oil and gas stocks have been converted to trust units. These oil stocks are converted to trust units in order to defer and save tax for unitholders. These trust units pay out large amounts of money and reduce the stock's growth potential.
If you're looking for oil stocks that will give you steady cash flow, a trust unit might be the right choice. Trust units are best avoided if you want to have an oil stock that has high growth potential.
Petroleum capital programs can include buying land, mineral rights, drilling programs, etc. which are all more likely to create shareholder value than simply paying out unitholders.