How Can a Family Evaluate an Investment in Natural Resources?

Evaluate a natural resources investment by reviewing project economics and the people expected to execute the plan. The category can include different assets and structures, from oil and gas or mining projects to energy-related businesses. A compelling thesis about scarcity or demand does not replace diligence on costs, operating plans, financing terms, and downside exposure.

Understand What the Capital Funds

Ask what the investment pays for and what must happen before it generates revenue or repayment. Identify the project's stage, planned uses of capital, expected operating milestones, and assumptions behind any forecast. If more capital may be needed later, understand who can provide it, how dilution could affect the family's position, and whether the family is prepared to participate.

The Single Family Office describes project financing that changed across phases as a solar business expanded its installation work. That example shows why terms and risk can shift as a project develops. A family should understand the conditions behind each financing stage and examine assumptions behind headline returns or early projections.

Assess the Operator and the Family's Edge

Review the team's experience with the specific resource and geography. Ask what the team has managed directly, what responsibilities sit with contractors or partners, and how performance and costs will be reported. In natural resources, assessing technical details and operating challenges can matter as much as the broad investment thesis.

In my experience, a family can be more effective when it concentrates in an industry it knows and builds relationships with experienced staff and deal sources. If the family lacks that knowledge, consider whether an experienced partner or fund can fill the gap. The operating business assessment can help structure questions about management and execution.

Review Financing Terms, Project Risks, and Cash Needs

Map the capital needed through the full project, including delays, cost overruns, and periods without distributions. Review debt terms and repayment sources with qualified professionals. Ask them to assess collateral and covenants. A resource project can require patience, and an investment may remain illiquid while the business develops. Make sure family spending and other commitments do not depend on a prompt sale or distribution.

Compare the position with the family's existing exposure to commodities and countries. Consider how it relates to the family's operating businesses. Then write down what would cause the family to add capital, hold, or exit. The long-hold planning guide can help frame the exit and liquidity questions, while the direct deal return calculator can show how assumptions affect modeled outcomes.

Tax treatment can differ by asset and structure. Talk with your CPA and attorney before committing, and keep those questions separate from the operating case. The family should be able to explain the project, the team's capabilities, and the path to cash returns in plain language.

Read next: When does investing in infrastructure fit a family's goals?

They seek a profit in each investment they make.

Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.