Accredited Investors in Oil and Gas and Corollary Risks

Accredited Investors in Oil and Gas and Corollary Risks

Fuel and energy resources are high in demand, which makes an oil or gas investment a lucrative choice if you are wise enough to get behind a company that has experience in profitability. The benefits are fairly well known, including tax shelters and incentives for drilling in the United States, nearly two hundred years as a strong and stable commodity, increasingly high demand that needs to be met with more supply and ongoing production that produces a liquid cash flow. Before you make oil and gas investments, however, it is important to know that due to some laws in place as well as company preferences, only accredited investors are usually allowed to participate.

An accredited investor is an individual who is considered to be fully functional and is not bound to all of the restrictions of the SEC. An individual investor qualifies by meeting one of three criteria:

1. Your individual annual income is more than $200,000; jointly, your income is more than $300,000, last year and the year previously, and you expect to maintain the same level ongoing; or
2. You have a net worth that is more than one million dollars, either as an individual or jointly with your husband or wife; or
3. You are an executive officer, general partner, or a director for the issuer of the security that is offered.

Most companies recommend that one become an accredited investor in order to protect themselves from the risk involved in oil and gas investment strategies. There are some exceptions that are made, usually if an individual shows that he or she has the equivalent experience and knowledge of the industry, and knows exactly what all the risks are when making the decision to invest. An oil and gas investment can end in significant loss, so even when unaccredited individuals participate, it is usually recommended that they have at least a net value of $750,000, and that they do not risk any more than ten or fifteen percent of their net worth.

A small or minimal investment in oil and gas wells and production is typically around $50,000, depending on how many units an individual investor purchases. Units can be priced at anywhere from $15,000 to $25,000 each. Big investors usually have enough net worth to fund entire oil wells, and can invest hundreds of thousands of dollars in a well, and still be able to absorb the shock of a huge loss.

According to many experts in the field, individual investors should only risk an amount of money in an oil and gas investment that they are willing and able to lose.

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