How alternative oil investments are transforming into trusted digital asset-classes
Investing in energy can provide decades of passive income and strong ROI potential. Despite oil price’s reliance on politics [in most cases], direct participation in oil and gas can still be a great way to potentially benefit from returns that outpace most market-based investments. But there’s more to the story than the price of oil. Improved technology and the shift to developmental, infield drilling in both proven conventional fields and unconventional shale have changed the dynamics and lowered the risk of investing. Focusing on low-cost acreage with proven oil reserves and ongoing oil production to built quality income-generating portfolio is an important strategy. Improved success rates and smart, targeted investments in proven, producing fields with established infrastructure can set the stage for strong investment performance.
Though ROI potential could be strong, the private equity asset-class as a whole continues to face some liquidity challenges due to (i) long holding periods required by fund managers from investors (ii) lack of marketability of the units or shares of a privately held oil company, which means it could be very challenging to find a secondary buyer for an investor’s units or shares.
Since recently, there has been an emergence of innovative solutions that bring newfound liquidity to the sector allowing for investors in the space to participate in marketable (to a certain extent) privately held securities. The process known as ‘security token issuance’ and Security Token Offering (STO). The STO model allows for companies and asset owners to issue digital securities that are coded in a cryptographic form on a trusted protocol (blockchain). These digital securities termed as; Security Tokens or Tokenized Securities are governed by smart contracts and in most cases [subject to certain regulatory conditions depending on jurisdictions] trade(able) on regulated Digital Asset Exchanges or walled exchanges.
Digital Asset Exchange serves as an exchange to trade digital assets such as; Bitcoin, Ethereum, etc… however, the emergence of STOs brought-forth regulatory frameworks (in certain jurisdictions) that allow for establishment and operation of exchange platforms that can market and trade Tokenized Securities and/or Security Tokens.
How does all this tie into oil investments? Well… PermianChain has built its very own Digital Asset Exchange as an extension to the PermianChain platform. The exchange allows for a compliant digital asset representing investments in proven oil reserves and ongoing oil production campaigns to be digitally traded (the Permian Token). The Permian Token is bringing newfound market making opportunity for professional investors with exposure to private equity oil investments to be able to earn and exit in a convenient, transparent and secure environment with access to potential secondary market investors globally.
Nevertheless, investing in oil & gas does not come without its own risks and hurdles. The uncertainties can include; commodities pricing, drilling and completion, well production, investment liquidity and more… However, Digital Assets in the form of Tokenized Securities have the potential to resolve some of these challenges as accessibility to capital investment and leverage is a key driver for sustaining ongoing oil production campaigns. With the power of blockchain and a dedicated trust-protocol which allows trace-ability, transparency and gives participants the rights to ascertain key performance indicators (KPIs), capital raising becomes much more convenient and trust is governed by a protocol which instills accountability and inclusion with network consensus.
Below table shows a brief high-level comparison between the alternative investment classes; traditional assets and tokenized securities (digital assets).
The crucial difference here [in the interest of investors] is the access to liquidity, market making potential and healthy working capital; which are the main hurdles that will allow oil production campaigns to continue without setbacks, as in most cases the sustainable leverage required to drill and produce proven reserves is what allows campaigns from turning a profit, in addition to the lack of liquidity or lack of market that pushes back a passive investor from participating in such an asset-classes. The convenience of reporting allows for investors to conveniently track and trace their investment without relying on any management as blockchain consensus and smart contracts can govern the reporting process.
In our next post we will dig deeper to explain how blockchain consensus and smart contracts work to compliment one another, providing platform users with transparent reporting.
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