ADVANTAGES OF OIL AND GAS INVESTMENTS

Advantages of Oil and Gas Investments

In addition to the obvious benefits of diversifying your investment Portfolio, there can be several short-term and long-term benefits to be enjoyed.

A) Tax Advantages*

Many astute investors, accountants, CPAs and financial planners overlook the substantial tax advantages offered by certain investments in oil and/or natural gas programs.  Simply stated, in an effort to encourage more oil and gas exploration, the U.S. Government may allow you, as a U.S. citizen, to deduct every dollar you invest in domestic oil and gas exploration, off from your income, before you figure your tax liability.

This could result in a dollar for dollar reduction of your taxable income, which means you could substantially reduce the amount of State and Federal income tax you pay.

In addition, assuming a person is in the 30% tax bracket, these tax benefits reduce the effective cost of investment, since the person would otherwise be paying the federal government (in the form of taxes paid) 30% of the tax advantaged investment dollars.

*There are significant tax benefits for the individual oil and gas investor; of which these benefits can be maximized with proper tax planning. This is only a brief explanation of a few of the federal tax considerations of investing in oil and gas ventures. The federal tax laws are very complex and this discussion is not to be considered comprehensive or complete. Each investor should consult his or her own personal tax advisor concerning applicability and effect on his or her own federal, state and local tax laws. These tax advantages do not apply for non-US citizens.

B) The Possibility of Substantial Returns

Of course, with the possibility of substantial returns, there may also be a higher degree of risk.  Some of the risks of investment in oil and/or natural gas are discussed elsewhere in this website and should be considered.

However, many financial planners and investment advisors would agree that the risks inherent in oil and gas exploration may be reduced if a project contains multiple wells, offers a form of “Turnkey” or fixed price drilling and completion costs, and offers a mix of shallow and deep wells in proven fields.

Although each project is unique, it is possible that an investor could enjoy substantially greater overall cash flow return than would ordinarily be associated with more traditional investments, such as stocks, bonds and mutual funds.

C) The Possibility of Streams of Residual Income

Even after a well has paid back 100% of its cost to the investor, a successful well may produce oil and/or natural gas for an extended period.  Some wells produce for periods of 10, 20 or even 30 years or longer, although production may not be as great in later years.