What type of working interest partners should invest in oil and gas?
Because of the risk associated with oil and gas investments, working interest partners must meet minimum suitability requirements as defined by the SEC, TX State Securities Board. Suitability requirements state that you must meet the following conditions: 1) you are able to sustain the loss of all or a portion of the investment; 2) you can benefit from the tax advantages associated with the investment; 3) you are an accredited investor; and 4) if not accredited, you are a sophisticated investor and the investment does not exceed 20% of your net worth.
What is a “sophisticated” and “accredited” working interest partner?
Accredited working interest partner are people who: a) have earned in excess of $200,000 per year individually or $300,000 per year with a spouse for the last two years and expect similar earnings in the current year; OR b) have a net worth that exceeds $1,000,000 excluding home, automobiles and furniture. A sophisticated working interest partner is defined as someone who can sustain the loss of all or a portion of their investment and the investment does not exceed 20% of their net worth. Contact us if you’re interested in completing a questionnaire to determine if you qualify.
What is the tax benefits associated with oil and gas investments?
After the Tax Reform Act of 1986 which eliminated many tax shelters, direct participation programs in oil and gas remain one of the few investments that allow investors to shelter income, making it one of the most tax advantaged investments available today. Generally, there are two areas that are immediately deductible in the first year, including Intangible and Tangible Development Costs, which enable investors to deduct as much as 60 to 100 percent of their investment within the first year. Intangible Development Costs (IDC) include the labor, fuel, geology, engineering, logging, testing, hauling, supplies, etc. necessary for the drilling and development of oil and gas wells. Tangible Development Costs (TDC’s) include the well equipment necessary for the development of oil and gas wells, which are considered as the production of an asset. TDC’s are capitalized and amortized over a seven year period, beginning with the month in which they are paid.
How will alternative energy sources affect the future demand for oil?
Even as alternative energy sources are being developed and more efficient uses of petroleum are discovered, the demand for oil and gas continues to rise, most markedly in China and India where the population in each of these countries now exceeds one billion people. And, oil is more than a means to fuel our cars. Oil is used to manufacture thousands upon thousands of products we use on a daily basis. So, oil will remain a top-consumable for the foreseeable future and beyond as any alternatives will take decades to gain enough of a foothold to reduce the demand for oil.
What is a track record?
A track record should detail exactly what investors paid in and the net amount of cash received by investors per project. Only this information can give you a true account of the company’s track record, and it’s important to note that many companies still don’t disclose this information. You’ll find that many companies will only tell you the number of wells drilled and completed; however, you should know that many “completed” wells never pay out.
What are the risks associated with oil and gas investments?
As with any investment, investors run the risk of losing all or a portion of their investment. However, you can offset some or all of your loss through tax deductions. Because of the risk associated with oil and gas investments, suitability requirements are utilized to determine who is a good candidate for such an investment. Contact us if you are interested in determining your suitability for an oil and gas investment.
How did oil and gas form? Where does it come from?
Oil and natural gas were formed hundreds of millions of years ago and are the result of plant and animal remains or organic material from within the earth. For the most part, these plants and animals lived in seas, and their remains settled on the ocean floor together with sediment which washed down from exposed earth and rock. This sediment ranged in size from molecules that dissolve in water to small boulders. In later periods, these layers of organic material and sediment were covered by more sediment which, as a result of time and pressure, converted to layers of sedimentary rock. To fully understand its development and geological history, download our free eBook “Understanding and Investing in Oil and Natural Gas.”
What is a “landman”?
A “landman” is an agent who works for an oil company to establish ownership of mineral rights, and ultimately negotiate the lease terms between two or more parties. The landman also understands the laws and rules concerning leasing in a certain areas and how to file the proper paperwork with the local government. In addition, the landman works to resolve problems that may occur in disputed ownership rights, and they are generally knowledgeable about drilling that has taken place in a certain area.
What is a “production project”?
Production projects are oil and gas properties that are already in production, typically producing and selling oil and gas. Sometimes production projects require re-work / repairs. This approach allows you to enjoy an immediate income from their investment; it’s important to know the projected lifetime of the well.
How many gallons of oil are in a barrel?
There are 42 gallons of oil in a barrel.
Will the oil and gas supply eventually run out?
Yes. Oil and gas are finite resources. While they are less plentiful today, the technology to locate resources is better. Experts believe we have already reached our peak oil supply, so the simple economics of supply and demand indicate the value will only increase as our supply falls off.
Is oil and gas a good investment opportunity?
As oil reserves continue to decline, and natural gas reserves in the near future, global demand will continue to rise. The top ten oil-consuming countries alone consume over 50 million barrels of oil per day. And even with the rising popularity of alternative energy sources as a means to fuel our cars, oil cannot easily be replaced as it is used to manufacture virtually everything we use on a daily basis, from clothing and pharmaceuticals to detergents and insulation. There are thousands upon thousands of petroleum-based products that we rely on every day. Through direct participation programs in oil and gas, working interest partners actually own a portion of a well and receive a share of the cash flow generated via monthly disbursements. In addition to the income potential, oil and gas investments offer substantial tax benefits, which the U.S. government has designed to encourage domestic drilling. Since the Tax Reform Act of 1986, direct participation programs in oil and gas are one of the few remaining investments that allow investors to shelter income, making it one of the most tax advantaged investments today. Investors may be able to deduct as much as 65 to 100 percent of their investment within the first year, whether the well is successful or not, and 15% of your income is tax-free.
Where are you drilling?
We are currently drilling in Texas, we concentrate on South Texas ( Eagle Ford Shale) where potentially higher production can reduced the Investor risk, which experts expect to become the biggest formation in Texas in terms of productivity, according to the American Association of Petroleum Geologists Explorer magazine.
Please explain Direct Participation Programs?
Direct Participation Programs allow investors to participate directly in the oil and gas venture’s cash flow and tax benefits.
How can I invest in oil and gas?
There are two primary approaches to investing in oil and gas. The first, and by far the most common is to buy stock in an oil and gas company via a stock exchange. The other approach involves direct participation in the drilling and completion of one or several wells. Here the working interest partner actually owns a portion of the well and receives a share of any income it generates.