Playbook #062: Oil & Gas
🖼️ The Big Picture
Oil & Gas can be a “heated” (pardon the pun) topic. Climate activists concerned about carbon emissions causing global warming want it replaced with green energy completely. And they want it done now. The other side says that oil & gas drive our economy and quality of life, and can’t be replaced soon, if ever.
Here at CAPITALIZE, we’re not the “ethics police.” We leave it to you to decide if a particular investment aligns with your values. That's actually a significant part of your Investor DNA. We just lay out the facts and opportunities the best we can so you can make an informed decision.
That said, perhaps the best way to look at oil & gas is through a lens of the Good, Bad, and Ugly.
- Oil & gas as an affordable, reliable source of energy has powered our modern-day living standards and longer life expectancy.
- A wide range of medical devices including pacemakers, heart valves, and respirators are petroleum-based (or include critical components derived from petroleum).
- It supports more than 10 million jobs across the U.S., and has created significant economic prosperity.
- Oil is used to create a lot of everyday items we use and take for granted like tires, smart phones, hairdryers, toilet seats, deodorant, paint, and toothbrushes.
- Drilling creates air pollution that can lead to respiratory, cardiovascular, and other diseases, reportedly causing 8.7 million deaths globally in 2018.
- Greenhouse gas emissions are considered a leading cause in a rising global mean temperature, which is linked to melting ice, rising sea levels, extreme weather, and severely damaging the fragile balance of ecosystems.
- Oil spills have killed millions of animals and caused devastating pollution.
The Ugly (truths) that all pragmatists must embrace:
- Oil & gas are still, pound for pound, some of the most energy-dense fuels available. Plus, their liquid nature makes them ideal for certain applications. That means we may need to rely on oil and gas for much longer than green energy purists would like because fossil fuels are harder to quit than most people realize.
- Big oil companies will be part of the future of energy. Bernard Looney, CEO of BP, has said that he was committed to turning BP into a “one-stop shop” for clean, reliable, affordable power. “You cannot go against the grain of society and expect to be a long-term successful company,” he said.
- Oil investing scams have been so widespread that the SEC has an entire brochure on how to detect a scam or perform proper due diligence (see the Everything That Could Go Wrong section below for a link to the guide).
Now, if your Investor DNA is aligned with the energy industry, what exactly is the opportunity with oil and gas?
Similar to our Whiskey issue, you can invest in the production of new barrels, stocks and ETFs, and even speculate on oil futures and options. This is an old, highly liquid, active and volatile industry. It can diversify your portfolio, help you hedge inflation, and be highly profitable over the long term with major tax breaks. However, there are significant risks, and it’s not for everyone.