Why invest in crude oil and natural gas?

Investing in Oil & Gas

As high net worth investors (accredited investors and QIBs) grow restless in today’s low yield environment of bonds and low interest rates as well as stock market volatility, many are more willing than ever to abandon the investment mainstream in search of opportunities that may deliver higher returns. Why invest in crude oil and natural gas? With a strong combination of long term passive income and high ROI potential, significant tax benefits, and portfolio diversification, direct participation of investing in crude oil and natural gas joint ventures meets a wide variety of aggressive investment objectives.

Benefits of Investing in Oil and Gas

Investing in energy can provide decades of passive income and strong ROI potential. Why invest in crude oil and natural gas? With crude oil and natural gas prices on the rise, direct participation in oil and gas investments can be a great way for partners to potentially benefit from returns that outpace most market-based investments. But there’s more to the story than the price of oil.

Improved technology and the shift to developmental, infield drilling in both proven conventional fields and unconventional shale have changed the dynamics and lowered the risk of investing. Improved success rates and smart, targeted investments in proven, producing fields with established infrastructure set the stage for strong investment performance.

Why Invest in Crude Oil and Natural Gas? Portfolio Protection

As a hard asset with low correlation to stocks & bonds, energy investments could protect your portfolio from short-term market fluctuations. While no single investment strategy is suitable for everyone, exploration and/or production-based energy investments offer the potential for higher returns than many traditional investments. Direct energy investments (a portfolio with ownership in producing oil and gas properties) enjoy low correlation with other traditional asset classes and generally positive correlation with inflation. As a diversification strategy, a portfolio with ownership in such an investment may provide a buffer against fluctuating market conditions and inflation movements.

Oil and gas projects offer some of the most attractive tax incentives for investments. The IRS provides tax incentives to encourage private investments in domestic crude oil and natural gas exploration and production. For drilling program investments, approximately 60-80% of well costs may be fully deductible in year one as intangible drilling costs. The remaining amount is categorized as tangible costs and may be depreciated over time (generally between 5 to 7 years). In addition, 15% of a property’s gross cash flow is tax free in the form of a depletion allowance. An additional cost depletion allowance allows for 100% deduction of property lease costs, sales expenses, legal and administrative accounting expenses. Learn more about oil & gas tax incentives or see how much you could potentially save with our new tax deduction calculator.

The risk information listed above is provided for illustrative purposes only and may not represent actual situations. 

The general tax discussion is provided for background information only. This information is not intended to be individual advice. Prospective partners should consult with their personal tax professional regarding the applicability and effect of any and all benefits for their own personal tax situation. In addition, tax laws change from time to time and there is no guarantee regarding the interpretation of any tax laws. For more information, please visit www.irs.gov.