Energy Commodities: Investments in Oil Exploration and Production - dummies

Energy Commodities: Investments in Oil Exploration and Production

By Amine Bouchentouf

One way to play the commodity markets is to invest in the companies involved in the production, transformation, and distribution of the world’s most important energy commodities. The global crude oil supply chain is long and convoluted, and these industries move in cycles, so identifying who does what allows you to develop a targeted investment strategy.

The oil industry starts in one place: at the oil field. The birth of the modern oil industry began with “Colonel” Edwin Drake’s discovery of the first commercially viable oil field in Titusville, Pennsylvania, in 1859. (Drake wasn’t really a colonel. He simply called himself that in order to get permits from the local authorities to drill for oil!)

Ever since that day, individuals, companies, and countries have relentlessly pursued the discovery of oil fields and oil wells.

Among industry insiders, exploring for oil and gas is affectionately called wildcatting. Most wildcatting expeditions end up without any oil discoveries. When wildcatters drill a hole in the ground and no oil comes out, it’s known as a dry hole, the unfortunate opposite of a gusher, a well that literally gushes oil.

The exploration and discovery of oil is a lucrative segment in the oil business. So how you can you strike it rich by discovering oil? Fortunately, you don’t have to roll up your sleeves and go prospecting for oil in the Texas heartland. You can invest in companies that specialize in the exploration and production of oil fields, known in the business as E&P.

Oil wells are found in two places: on land and at sea. In recent years, offshore drilling has generated a lot of interest among investors, and a flurry of activity has been taking place in this sector as oil on land becomes scarcer.