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Keeping your head during the fracking gold rush

If you hear the word “fracking” and you think of the science fiction series Battlestar Galactica, this is not the right article for you. If however you have an interest (either intellectual or financial) in the oil and gas exploration business, then fracking has a whole different meaning, specifically the process by which oil, natural gas, or other petroleum products are extracted by a process that injects fluids into petroleum-bearing rock in order to extract the petroleum products.

The process is controversial in some circles because of the environmental side effects. If you happen to be in circles that have an interest in investing in oil and gas exploration and extraction, the only controversy may be how quickly you can get in on the action and receive a decent return on your investment.

The fracking process is the key reason why there has been a substantial increase in oil and gas exploration and production in older oil fields in Texas, newer fields in North Dakota, and in other parts of the US.

There are many ways to get involved in the action, and how you can get involved depends on your current financial situation. For most people who do not have substantial income or wealth, the two most likely ways you can get involved is to either get a job of some kind in a related field, or to invest in the stock of companies involved in the exploration, production, distribution, or sale of petroleum related products and services. It will be up to the the potential employee or investor to find out if in fact the company you are looking at is actually involved in an area of the petroleum business where you want to invest.

If you are a qualified investor, meaning you meet certain criteria for income, net worth, or both, you can participate in a wide range of activities beyond employment or stock and option trading. This includes limited partnerships in petroleum exploration or development projects, real estate investments in the mineral rights of landowners in areas where there is substantial recent oil and gas exploration or production, or investing in companies that are actively looking for companies to purchase that may be in a related business.

The first order of business for any new investor, or even a current investor looking at expanding into a new area of the oil and gas business, is to do their research or due diligence. For any investor, that may mean learning the vocabulary and geography of the business so that when you read or hear something about fracking, you will have at least an idea of what other questions you should be asking.

If you are a more sophisticated investor, it doesn’t mean you can trust your past experience as a limited partner in a project or your time working as an analyst at a chemicals m&a firm. You have to embrace the attitude of someone going into an entirely new kind of business, and make no assumptions that what you knew yesterday has any bearing on what path you should take today.

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