12 Million Americans are Making a Fortune on This
The shale oil revolution has done more than transform the U.S. into one of the world’s energy giants.
It’s also put money into the pockets of millions of Americans.
In North Dakota, Oklahoma, Kansas, Texas and other states where fracking is extracting “tight” oil from shale deposits, the people with new-found riches are called “shalionaires.”
They might own a family farm. Their great-grandparents might have bought what was then considered worthless land during the depression.
One way or another, 12 million Americans receive regular royalty checks from oil and gas wells, according to the National Association of Royalty Owners (NARO).
And that’s just one of seven ways to make a bundle on energy…
How to Make Money on Oil and Gas
Royalty checks from oil and gas wells are so widespread some universities, including the University of Denver, Texas Christian University, teach classes on how to negotiate and manage mineral rights for landowners.
It’s a big business.
In Texas alone, said University of Michigan economics professor Dr. Mark J. Perry, royalty checks totaled $15.3 billion in 2013.
And a well can pump oil and pay royalties for 10-30 years.
But owning land in an oilfield isn’t the only way to make money on energy. All told, there are seven public and private ways to profit from oil and gas.
The publically available option is the stock market, which offers three investment options.
The first is buying shares of energy company stocks, such as Schlumberger Limited (NYSE:SLB) or ExxonMobil (NYSE:XOM).
Schlumberger is up 44.1% over the last two years and currently pays a 1.7% dividend. ExxonMobil has posted a 1% loss over the same time period and yields 3%.
Investors who want more diversity than shares in a single company have two other options: investing in sector index or exchange-traded funds (ETFs). Both are a “basket” of energy stocks to attempt to track the sector as a whole.
A prime example is Vanguard Utilities ETF (NYSE:VPU), which is an index fund that tracks the utilities sector. It’s up 14.1% this year, and currently yields 3.3%.
Then there are mineral and drilling rights.
Landowners in the states where energy companies are drilling for oil or natural gas are making fortunes by allowing wells on their land.
Farmland, vacant land, land that someone’s great grandfather bought 100 years ago, is now generating monthly royalty checks.
In states with a history of energy exploration, oil, gas, or mineral rights may have been “severed” from the land itself, which offers yet another way to make money on energy. A relative may have owned those rights without ever owning s single square foot of land.
It might be worth a trip to the county courthouse where your great-grandparents lived to check the land records.
But you don’t have to own stocks, land or mineral rights to make money on oil and natural gas.
You can own the oil well itself.
Own Your Own Oil Well
Up until a few years ago, only wealthy insiders owned oil or gas wells. An oil or gas exploration and drilling company would raise funds from a small circle of industry insiders to finance upcoming drilling projects.
The rich got richer.
Everyone not in that inner circle was left out.
But in 2012 the rules changed.
Thanks to the Jumpstart Our Business Startups (JOBS) Act, companies could sell shares to up to 2,000 investors without becoming public companies and selling stock.
The floodgates opened.
Suddenly, ordinary investors could invest in start-ups and smaller companies long before they went public.
And they did.
Crowdfunding websites, such as EquityNet.com, Fundable.com, MicroVentures.com and others made investing in new companies as simple as clicking a mouse.
Energy companies are part of that mix.
But besides buying a piece of a new energy company, changing regulations made another, potentially far more lucrative, investment possible.
Direct investing in oil and gas wells.
Now, accredited investors can own part of an oil well, or a series of oil wells, often for less than $15,000 (sometimes for less than $7,000).
The payoffs can be triple-digit percentages.
According to U.S. securities law, an accredited investor is an individual with $1 million in net worth (excluding the value of the primary residence) or someone whose income has been at least $200,000/year for the past two years (or a joint income of $300,000/year with a spouse).
The benefit to directly investing in oil wells is simple.
You own the oil coming out of the ground, not a share of some company drilling for it.
Not only do investors see an income stream for years, but they also receive substantial tax benefits, thanks to the nature of oil well investing.
And even though the price of oil has dropped recently, the long-term trend for oil prices only moves in one direction.
As a hard asset investment, it’s real…it’s tangible… and it’s in increasingly high demand.
Indeed, the Energy Information Administration (EIA) puts current global oil consumption at a massive 91.5 million bpd, or more than 5.5 million bpd higher than in 2007. Meanwhile, the global oil supply is roughly 91.8 million bpd, hardly an oversupply.
As Kent notes, “What’s really attractive about these wells is that once drilling commences, they can often pay back every penny of investment capital in a very short period of time. After that “break even” point, it’s pure gravy for investors.”
The bottom line is simple. Investors have more ways than ever before to make money on energy. And, with a world whose appetite for all forms of energy increases every year, there’s no better sector for making money.
PS: For the 12 million Americans who receive royalty checks from oil and gas wells, the U.S. rise in oil production has brought a “Second Coming” of wealth. To learn how you can share in the profits, click here.