Why Investing in Oil and Gas is a Solid Financial Move

Oil and gas remain very much in demand—perhaps even more than ever—despite alternative energy sources constantly being discovered, developed, and improved. Not only are petroleum, natural gas, and other similar products a popular source of heat and energy, but they are also used to create asphalt, lubricants, wax, plastics, and more.

According to energy expert Paul Favret, this abundance of opportunities makes investing in the sector a sound financial decision. For investors, this is just one of the advantages of putting your money in oil and gas.

Then, there is also the diversification of your portfolio.

Throughout history, oil and gas investments have proven to be an effective diversifier for any portfolio. Proof of this is that a slow economy, which causes most stocks and other asset classes to stagger, often entails higher oil and gas prices, consequently triggering a rise in stocks in this sector relative to the overall market level. Such investments can then help insulate a portfolio from fluctuations in the market.

On that note, Paul Favret believes that the potential risk-adjusted investment returns for the oil and gas industries are significantly higher than many other investment vehicles, especially when funds are infused in smaller companies. As he points out, striking big on even a single well can pay huge dividends for these small-cap energy companies in the short and long run.

In addition, oil and gas companies also benefit from robust tax benefits, which contribute to their profitability and positive free cash flow. These tax incentives include deductions for drilling costs, lease cost deductions, depletion allowance, 1031 exchanges, and many more.

Would you want to invest in oil and gas if you had the means? Why or why not? Share your thoughts with Paul Favret in the comments section below.

More articles on oil and gas, geology, and other fascinating Earth-related topics by Paul Favret can be found on his blog. Click here.