The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Oil and Gas

Whether a family will have a significant allocation to oil and gas³ tends to depend on where the family is located. Wealthy families in Texas and Oklahoma, for example, are more likely to own oil and gas than to own real estate. Similar families in New York or Florida may well have no oil and gas exposure at all.

Even more than with real estate, managing a successful oil and gas portfolio requires that a family be willing to “be in the business,” to learn the arcane jargon and (often) slippery practices in the industry that can lead amateur investors astray. Once a family decides to make a commitment to the asset, there are many strategies available: buying royalty interests; buying pieces of producing wells; investing in low-risk, low-return drilling partnerships; investing (speculating?) in wildcat drilling; buying up leases; investing in operating companies, and so on.

Aside from specific oil and gas investments, virtually every investor already has a position in oil and gas, and usually a complex one, because almost every portfolio will hold stocks with an obvious connection to the oil and gas business. For example:

• The major integrated oil companies that produce, transport, refine and distribute petroleum
• Independent producers
• Pipeline companies
• Oilfield service companies
• Manufacturers of the capital goods used in production, transportation, distribution, and refining

Just as important, most portfolios include a large number of companies that consume energy and ...