Learn about the unique benefits of participating in

Oil and Gas Investing

It’s clear, growth in oil and natural gas is being fueled by the world’s changing energy needs. Worldwide demand is increasing and will continue to increase over the coming decades. Sophisticated investors recognize that. Individual and institutional investors from all over the globe entrust billions of investment dollars in the drilling for oil and gas in the United States. Invest in oil drilling today.

Benefits of Investing in Oil and Gas Drilling Projects

By 2035, world energy consumption is projected to grow by 49% — with over half of that energy supplied by oil and gas.  Look to the oil and gas industry to deliver long-term economic value, cash flow, dramatic upside potential and permanent tax benefits, such as the ones listed below.

  • Cash Flow (Monthly Passive Income): Long considered a mailbox investment, revenue disbursements are paid monthly and are accompanied by a production report.
  • Long-term Passive Income: Payments are made for as long as an asset produces, which can be upwards of forty years or more in some fields.
  • Flexibility of Ownership:  Your ownership can be through a trust, an LLC, a corporation, or individually.
  • Hedge Against Inflation & Stock/Interest Rate Movements  
  • Asset Value Appreciation Potential: The oil and gas industry is currently in an extended pricing downturn, making the entry costs of asset acquisition lower than what has been seen in years.
  • Low and Finite Supply of Oil & Gas
  • Diversification:  Added diversification to overall holdings
  • IRA Compatible
  • Unique Tax Advantages: Owners enjoy a depletion allowance which waives income taxes on the first 15% of royalty income on an annual basis.

Tax Advantages of Investing in Oil and Gas Drilling Projects

  • Intangible Drilling Cost Tax Deduction: 100% deductible in the first year
  • Tangible Drilling Cost Tax Deduction: 100% tax deductable
  • Active vs. Passive Income:  Working interest deductions can be offset against income
  • Small Producers Tax Exemption:  15% of Gross Income is tax-free
  • Lease Costs: 100% tax deductible through cost depletion
  • Alternative Minimum Tax: Generally consists of adjusted gross income, minus allowable Alternative Minimum Tax itemized deduction, plus the sum of tax preference items and adjustments
  • Tax Bill Gives Incentive to Marginal Wells:  Tax credit of up to $9 per well per day for marginal wells

Explanation of Oil & Gas Investing Tax Benefits

Intangible Drilling Cost Tax Deduction

The intangible expenditures of drilling (labor, chemicals, mud, grease, etc.) are usually about (65 to 80%) of the cost of a well. These expenditures are considered “Intangible Drilling Cost (IDC)”, which is 100% deductible during the first year. For example, a $100,000 investment would yield up to $75,000 in tax deductions during the first year of the venture. These deductions are available in the year the money was invested, even if the well does not start drilling until March 31 of the year following the contribution of capital. (See Section 263 of the Tax Code.)

Tangible Drilling Cost Tax Deduction

The total amount of the investment allocated to the equipment “Tangible Drilling Costs (TDC)” is 100% tax deductible. In the example above, the remaining tangible costs ($25,000) may be deducted as depreciation over a seven-year period. (See Section 263 of the Tax Code.)

Active vs. Passive Income

The Tax Reform Act of 1986 introduced into the Tax Code the concepts of “Passive” income and “Active” income. The Act prohibits the offsetting of losses from Passive activities against income from Active businesses. The Tax Code specifically states that a Working Interest in an oil and gas well is not a “Passive” Activity, therefore, deductions can be offset against income from active stock trades, business income, salaries, etc. (See Section 469(c)(3) of the Tax Code).

Small Producers Tax Exemption

The 1990 Tax Act provided some special tax advantages for small companies and individuals. This tax incentive, known as the “Percentage Depletion Allowance”, is specifically intended to encourage participation in oil and gas drilling. This tax benefit is not available to large oil companies, retail petroleum marketers, or refiners that process more than 50,000 barrels per day. It is also not available for entities owning more than 1,000 barrels of oil (or 6,000,000 cubic feet of gas) average daily production. The “Small Producers Exemption” allows 15% of the Gross Income (not Net Income) from an oil and gas producing property to be tax-free.

Lease Costs

Lease costs (purchase of leases, minerals, etc.), sales expenses, legal expenses, administrative accounting, and Lease Operating Costs (LOC) are also 100% tax deductible through cost depletion.

Alternative Minimum Tax

Prior to the 1992 Tax Act, working interest participants in oil and gas ventures were subject to the normal Alternative Minimum Tax to the extent that this tax exceeded their regular tax. This Tax Act specifically exempted Intangible Drilling Cost as a Tax Preference Item.

“Alternative Minimum Taxable Income” generally consists of adjusted gross income, minus allowable Alternative Minimum Tax itemized deduction, plus the sum of tax preference items and adjustments. “Tax preference items” are preferences existing in the Code to greatly reduce or eliminate regular income taxation. Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage and the wells thereon.

Tax Bill Gives Incentive to Marginal Wells

The US Senate and House of Representative have passed a tax incentive bill to help small oil and gas producers. This bill provides a tax credit of up to $9 per well per day for marginal wells. A typical marginal well pumps 15 barrels of crude or 90 thousand cubic feet of gas per day. There are 650,000 “marginal” or “stripper” oil and gas wells in the USA. Marginal wells provide as much as 25 percent of the nations’ crude supply (on par with Saudi Arabia) and about 10 percent of gas stocks. In 2002 alone, 17000 oil and gas wells were permanently plugged with cement (13,600 oil wells and 3,900 gas wells). This tax bill will act as a safety net to save many of these wells, thereby reducing our reliance on the Middle East. The tax credit phases-in if the average crude price for a year is less than $18 a barrel or $2 per thousand cubic feet of gas. The maximum tax credit is $3 a barrel for the first three barrels of crude produced if prices plunge below $15 a barrel and 50 cents per thousand cubic feet if gas prices average less than $1.67 per thousand cubic feet. Crude oil is now above $54 a barrel on the New York Mercantile Exchange and gas futures are near $7 per thousand cubic feet.

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Asset Portfolio & Projects

We have ownership in wells in Oklahoma, Louisiana, Kansas, and Texas.  Currently our primary focus is in Texas.   View our Asset Portfolio to see where our experience lies.

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This content is provided for informational purposes only. Information on this website is not intended to be a solicitation of any kind. Nothing herein shall be construed as tax, legal or accounting advice. Investing in oil and gas is highly speculative and could result in substantial losses. Potential investors should consult their attorney, accountant and financial advisors before investing in oil and gas. Past performance is not a guarantee of future performance or returns.