Oil and Gas Investments
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Nearly 98% of everything you do is in some way related to crude oil. Heat for your home, gas for your car, plastic bottles and cosmetics are just a few examples of the thousands of petroleum-based products you use every day.
Here are some things you should know about oil & gas drilling:
- There has been an explosion in technology in the US in the past 10 years providing access to oil and gas reserves previously unavailable.
- The US is dotted with massive shale formations holding billions of barrels of oil and gas that have been unlocked through technology breakthroughs in horizontal drilling and fracturing methods.
- The new technology has matured rapidly in the past five years and drilling in various shale formations such as the Bakken, Marcellus, Utica, Cline and dozens of other shale formations can be very attractive investments.
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Why you should take advantage of these oil & gas drilling investment opportunities:
- You must be an accredited investor to participate in this investment opportunity. (Click here to learn more)
- Our firm partners with veteran oil & gas product sponsors to provide the best oil & gas investment products for our clients.
- In our opinion, the best funds for investors to consider are ones that include dozens of “developmental” wells in the program. Developmental wells are wells drilled in a proven oil and gas field where the risk of dry holes is substantially reduced. Multi well programs provide drilling diversity for the investor because even in developmental drilling performance can vary greatly from well to well. The goal is to generate a good average result from the wells collectively
- Developmental drilling programs can provide very attractive tax benefits to investors.
- Under current tax laws, most programs have the potential to provide an 80-90% first year tax deduction you can use against your taxable income. (See IRS Code Section 469(c)(3)).
- For example, if you invest $100,000 you may receive an &85,000 first year tax deduction. If you are in the top federal tax bracket (39.6%) and a 5% state income tax rate, your investment can reduce your personal income tax bill by approximately $38,000 for the year. You can get this tax benefit even if you invest in a drilling program late in the year.
- In addition, the producing wells from these programs may generate a regular revenue stream to investors that is partially tax sheltered (You should consult your tax advisor regarding the oil and gas depletion allowance). Many horizontal shale wells can generate cash flow returns to investors for 20-30 years depending on long term pricing for oil and gas. Despite the development of alternative energy sources, oil and gas will be the backbone of world energy supply for years to come.
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Tax Deduction Example
Here’s a simple example of how the tax component to the investment works. The example below is for an annual income of $500,000. The strategy of the oil and gas partnership can work well for incomes above $200K, but is not appropriate below that threshold, absent a sizeable net worth.
- Above table is based on the assumption of married, Filing Jointly
- These deductions also apply to your Alternative Minimum Income up to 40% (see IRS Code Secion 57(a)(2)).
Risk Factors can include but are not limited to:
(Please note: Before making an investment decision you must obtain and read the offering materials in their entirety)
- This investment may not be suitable for all investors.
- This investment is illiquid and investors should be able to bear the loss of their investment.
- There is no guarantee of return of investment or rate of return on investment because of the speculative nature of drilling oil and natural gas wells.
- You may not recover any or all of your investment in a Partnership, or if you do recover your investment in a Partnership, you may not receive a rate of return on your investment that is competitive with other types of investment.
- Because some wells may not return their drilling and completion costs, it may take many years to return your investment in cash, if ever.
- New horizontal drilling techniques may be used.
- Partnership distributions may be reduced if oil and gas prices decrease during peak production.
- Partnership distributions may be reduced if there is a decrease in the price of oil and natural gas.
- Prices for oil and natural gas will depend on factors largely beyond the control of the Partnerships and prices may fluctuate widely in response to factors including but not limited to:
- changes in the supply of and demand for oil or natural gas
- market and geopolitical uncertainty; and
- fluctuations in world currency markets.
- Possible Leasehold Defects.
- Transfer of the working interest will not be made until well is completed.
- Participation with third parties in drilling wells may require a partnership to pay additional costs.
- Please read the disclaimer below for information on additional risk factors and the section in the Private Placement Memorandum entitled “Risk Factors”.
The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; the investment is highly illiquid. Investing in securities involves risk, and investors should be able to bear the loss of their investment.