Why Invest in Oil and Gas
It’s clear, growth in oil and natural gas is being fuelled 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.
Look to the oil and gas industries to deliver long-term economic value, cash flow, dramatic upside potential and permanent tax benefits.
Consider this: By 2035, world energy consumption is projected to grow by 49% — with over half of that energy supplied by oil and gas.
The global population’s energy needs are expanding exponentially on a daily basis.
Investors couldn’t be happier with the long-term economics of oil and gas as supply-and-demand of global energy tips to the “demand” side of the scales. Smart and sophisticated individuals, prestigious U.S. and foreign investment houses both here and abroad, pension and government funds, major industrial companies and banks and looking increasingly to oil and gas to deliver consistent profits and guaranteed growth.
As former Communist countries enter a world of free market enterprise, emerging markets, powered by a low-cost workforce and ever-increasing consumer demand, look to oil to fuel GDP growth. In the light of predicted life expectancy increase and global population rise, consider the unstoppable demand to fire the factories, fuel the cars, light the new houses spark the home entertainment systems and launder the clothes in Southeast Asia and Eastern Europe – which in turn will feed countless new business opportunities in the oil industry.
But it’s not just growing demand for the product that makes investment in oil and gas a no-brainer. Oil and gas fields boast a high intrinsic value, one that, as tried and true as an exceptional red wine, increases with age. Field production is expanded regularly as new wells are completed, as production techniques are refined, as secondary recovery options are improved. Productive zones previously bypassed are often redeveloped. The advent of new technologies is paving the way to guarantee supplemental yield to gradually replace that from primary reserves which, having been actively producing for decades, are now slowly depleting. Tech giants like IBM exploring “smart”-field approaches through improved data integration and business analytics are well on their way to creating systems linking a field’s business functions into one smooth system. The outcome: upstream oil and gas producers can look in the coming years to raise production levels, recovery rates and cost efficiencies.
As the field value increases, so does the product value. The steadily climbing value of the gas and oil industry will come as no surprise to anyone who experiences first-hand – at the gas pump or when paying their home heating bill – the rising cost of petroleum and gas products.
And the value remains safe for the life – often decades — of an optimally-yielding field. Reservoirs embedded in rock thousands of feet underground remain untouched by the elements. Impenetrable by all except the owners, these reserves are secure and will remain so for decades. No high-security bank vaults needed. And, as political and social turmoil elsewhere in the world boil and bubble, the physical security of U.S. oil and gas fields is ever more underlined by a political security: onshore properties and reserves in the United States harbor one of the world’s most valuable assets in one of the world’s safest places.
Owning just a little oil and natural gas can be worth a lot of money. Oil and natural gas, as easily-valued commodities, have proven time and time again to be one of the most essential basic commodities of the worlds’ growing industrial societies. So great is the economic power of oil that it has propelled relatively small countries to commercial and financial preeminence. Oil and gas are the largest business in the world. Of the top five Fortune 500 companies, three of them are oil companies. Exxon’s net income alone was greater than the sales of more than half of the Fortune 500. As worldwide energy prices continue to rise, “black-gold” and gas owners are seeing a surge in profits. Today, the person who owns a relatively small natural gas well or two with recoverable reserves (500,000 Mcf) of natural gas is a multi-millionaire.
Oil and gas investing is a particularly attractive medium to guarantee an ongoing cash stream. Revenue checks are issued on a regular basis once production starts. Let those profits grow organically with auto-reinvest, and enjoy the income tax benefits today. With appropriate professional advice and foresighted, pre-investment research into properties, their geology, production history, drilling company and deal structure, investors can assure themselves of the quality and look at projected return on their specific investment choice. All types of investments, of course, carry a certain risk factor – look to lower your own risk in oil and gas by doing your homework.
Unlike other industries, oil and gas drilling boasts a huge upside potential. The exciting opportunity of discovering high-yield new field wells sets oil and gas investments apart from all other investment types. Look at a theoretical potential return in this example: A natural gas field with 100 billion cubic feet of reserves has $300 million of un-discounted reserves at $3 per Mcf (thousand cubic feet). A single well in a field may have reserves of 3 to 15 billion cubic feet of gas. Do the math, and marvel at the gross undiscounted value of $9 million – $45 million for one single well! All subsequent drilling in this field is no longer high-risk exploration, but rather a low-risk developmental activity. This is when the real profits start to roll in – when drilling low-risk offset development wells in a known, high $$-valued reservoir.
Let’s get back to the tax breaks. While share ownership in oil and natural gas is not a tax shelter, there are some taxation benefits associated with owning oil and natural gas properties. For example, intangible drilling costs, including e.g. labor and other unrecoverable expenses, can comprise up to 65% of the investment, and typically can be written off. Over time, remaining costs may be written off, at most over the time period of life of the well. (In some cases, write-offs can even reduce an investor’s tax bracket.) And, if a well turns out to be dry, the entire investment is a write-off.
Not to forget, fifteen percent (15%) of the tangible oil and gas income generated from successful wells is deductible from federal taxable income. As with all investments, each investor is urged to consult their own advisors as to the benefits an investment in oil and natural gas may have regarding the federal income tax consequences and how it may apply to their individual tax situation. However, the tax benefits of oil and gas investment are undeniable.
We can expect our politicians to support tax benefits and incentives well into the future. Eager to achieve energy–independence in a world seeing constant shifts in economic and political power and influence, the U.S. is now looking to tackle its own its own supply-and-demand conundrum:
The demand for power, both consumer- and industry-driven, is escalating as the rate of our technological advancements accelerates. An increasing use of electronic devices – along with our need for cozy warm houses in winter and refreshing air conditioning in summer – pressures utility companies to increase output. Electricity suppliers throughout the country, for example, are building new gas-fired combined cycle turbine generator power plants to meet consumer expectations. Supply of natural gas is forced to increase to meet suppliers’ demand just as those same suppliers adapt to increase their output to satiate an ever-growing and ever-hungrier U.S. consumer population.
The United States consumes around 20 million barrels of oil daily. Of the crude oil is consumes, 70% is imported. As demand continues to rise and the push toward energy independence intensifies, it is a no-brainer that domestic oil production must increase, particularly in the area of land-based fields. Currently, onshore production accounts for just 5% of our national oil – and the door of opportunity is wide open, inviting investment in an exciting and durable industry supporting America’s soaring energy demand.
Remember, the sooner you invest, the sooner you see profits. The longer you hold your investment in oil and gas, the more you compound your profit. Make an appointment with your advisor today, and find out how you can be part of one of the world’s largest and most profitable growth industries: oil and natural gas.
So why do oil and gas deals have a bad rap in the private sector?
Too often, oil and gas deals are pitched to affluent investors with no consideration of their risk tolerance or understanding of the industry. Investors complain too much emphasis is placed on potential returns with too little explanation of risks. Some oil and gas companies seem to forget potential investors are typically not oil and gas insiders. These companies make the mistake of assuming potential investors have an understanding of oil and gas production and terminology, and may not take the time to explain the project properly. Adding to the problem, companies feel a sense of urgency to start projects and may rush investors to make a decision without seeking legal or tax advice – leaving investors vulnerable to unexpected consequences down the road.
Many private oil and gas opportunities are structured with an upfront fee. That means the company makes most of its profit by just placing investors’ money in the deal. Not only does this mean fewer of each investor’s dollars go into the deal than in other structures, it means the offering company’s motivation is to fill the deal fast for fast profit. This structure provides no incentive for the offering company to stay engaged with investors, or to offer deals that are more likely to provide better potential returns or production.
The front-end fee structure contributes to another complaint: lack of communication. Sadly, investors often find companies less willing to return phone calls or answer questions once they’ve received a check. This tends to get worse over time – particularly if there are problems with the project. Naturally when things are going well in the oil patch, companies can’t wait to tell investors. Happy investors are likely to re-invest. The reality is an array of problems, ranging from equipment repairs to dry holes, can arise and should be addressed with investors. However, many investors have found companies go silent when there are problems – particularly when they have downplayed the risks when soliciting investors.
Looking for the big score
Rather than focusing on making respectable returns in proven fields, many companies are looking to make a killing in exploratory or wildcat wells. The allure of making huge profits by out-maneuvering the rest of the players in the game sometimes eclipses the risk of loss, and some companies are more than happy to capitalize on an investor’s dream of hitting it big – allowing them to invest more capital and take on more risk than may be advisable. More often than not, this results in disappointing losses and negative attitudes about the oil and gas industry as a whole.
Lagging behind the times
In the Internet age, investors are accustomed to having information at their fingertips. With online access to brokerage accounts, banking, and investment news, we can get up to the minute updates on account balances, asset values, and industry happenings. However, out in the oil patch, people are focused on doing a job and doing it right – not on feeding information into the latest technology. Too many companies fail to bridge this gap by providing their investors access to important updates pertaining to project. As a result, investors have less confidence in the performance – or even the legitimacy – of oil and gas investments.
U.S. Energy Assets does business differently.
Our core principles address each of the common problems investors encounter with other oil and gas companies. Being a faith-based organization, we operate with the utmost integrity in all of our business dealings. Rather than taking big risks with investors’ hard-earned money in the hopes that they pay off, we focus on earning profits in proven fields while investing right alongside our capital partners. Our deals are industry-grade opportunities that are structured to favor the investor in revenue sharing that directly results in higher ROI potential.
At U.S. Energy Assets we educate prospective partners, communicate effectively, and allow investors time to evaluate each project.