Most guides on how to invest in oil and gas stop at energy stocks, ETFs, and futures. Accredited investors have another route: a working interest in specific wells, held through a private partnership, with production revenue and tax deductions that pass through to the investor's own return. That route asks more of the investor, because the investment is private, illiquid, and only as sound as the people and wells behind it.
United Exploration, LLC is an independent oil and gas company in Southlake, Texas that manages oil and gas investment partnerships for accredited investors. The United management team has participated in the development of more than 250 wells from North Dakota to the Texas Gulf Coast, and United invests with its partners in the drilling and development of each project it funds. The checklist below follows the order an investor actually moves through: qualifying, vetting the sponsor, testing the deal, reading the documents, and confirming what happens after the wells start producing.
How Do Accredited Investors Invest in Oil and Gas Wells?
Accredited investors typically invest in oil and gas wells through a direct participation program (DPP), a private partnership that acquires working interests in specific wells. Investors share in production revenue and costs, receive distributions once the wells produce, and report pass-through deductions, including intangible drilling costs, on their own tax returns.
Oil and gas well investing through a DPP differs from buying energy shares in a brokerage account. There is no exchange and no daily price, offerings are made privately, and returns follow what the wells produce rather than market sentiment about the sector. United's guide to oil and gas direct participation programs explains the structure in more detail.
Step 1: Confirm You Qualify and That the Investment Fits Your Portfolio
Private oil and gas offerings are typically structured under SEC Regulation D and limited to accredited investors. Under Rule 501(a), an individual generally qualifies through one of three tests:
- Income: More than $200,000 in each of the two most recent years, or more than $300,000 jointly with a spouse, with a reasonable expectation of the same this year.
- Net worth: More than $1 million, alone or with a spouse, excluding the value of a primary residence.
- Professional licenses: A Series 7, Series 65, or Series 82 license in good standing.
Qualifying is the starting line. Before you look at a specific project, check these points against your own situation:
- Liquidity: There is no ready secondary market for these interests. Plan to hold for the productive life of the wells and avoid committing capital you may need in the near term.
- Risk tolerance: Private oil and gas investments are generally illiquid, involve substantial risk, and may result in the loss of the entire investment.
- Ownership vehicle: Investments can be held as an individual, a trust, an LLC, or a corporation, and drilling partnerships are compatible with self-directed IRAs.
- Tax profile: Oil and gas working interests are exempt from passive income classification, so intangible drilling costs can be deducted against active income. United covers this in how intangible drilling costs can offset active income for high earners.
Step 2: Vet the Sponsor and the Operator
Every drilling partnership involves two parties worth investigating separately. The manager, or sponsor, assembles the investment and administers the partnership over the life of the wells. The operator drills, completes, and produces the wells.
Questions for the sponsor
- How long has it been offering oil and gas investments, and how many partnerships has it managed?
- How have mature projects performed relative to their original projections?
- Does it provide regular reporting and respond to investor questions?
- Can it supply references or evidence supporting its stated track record?
- Does it invest alongside outside capital?
Questions for the operator
- Does it have experience in the exact basin and formation being developed?
- How have its nearby wells performed, and has it completed comparable multi-well projects before?
- Is it well capitalized enough to carry out the proposed development plan?
- Who owns the drilling company? The SEC has flagged cases where a promoter also owned the drilling company and marked up drilling costs.
Background checks you can run yourself
Search the names of the sponsor, its principals, the broker-dealer, registered representatives, and the operator through FINRA BrokerCheck, the SEC Investment Adviser Public Disclosure database, state securities regulators, court records, and Secretary of State business records. Look for patterns. A single commercial dispute is common in this industry, while repeated securities, title, or payment-related claims call for a clear explanation. United's post on questions to ask before investing in a private oil and gas offering goes deeper on this stage.
Step 3: Test the Project's Ownership and Economics
A strong sponsor can still bring you a weak deal, so the next layer of your investment due diligence checklist focuses on the specific project.
What will the partnership actually own?
Request the exact working interest and net revenue interest being acquired. The working interest sets your share of costs, and the net revenue interest sets your share of production revenue after burdens such as landowner royalties, overriding royalties, back-ins after payout, carried interests, and reversionary interests.
Is the project priced fairly against nearby production?
Ask for a cost breakdown covering leasehold or acquisition costs, drilling and completion, operating expenses, management or syndication fees, administrative expenses, contingencies, and broker compensation. Then compare that total with realistic production from nearby wells. Strong wells can still produce disappointing returns when too much is paid for the interest.
The offset wells used in projections should match the project on distance, target formation, lateral length, completion design, and operator. Be cautious when projections rely mainly on the best well in a large area instead of a representative group. Ask what oil and gas prices the model assumes and how the economics hold up at lower prices. United's explainer on IRR, ROR, and PV10 covers how to read those return figures.
What else could you be asked to pay?
Ask whether your initial investment is the most you can be required to contribute. Some projects are offered at a fixed, turnkey cost, while others allow cash calls if actual expenses exceed estimates. Reviewing the authorization for expenditure (AFE) shows how drilling budgets are set. Confirm what stage each well is in, from permitted to producing, so you know what still has to happen before revenue begins.
United's due diligence framework lays out all ten questions it recommends investors ask at this stage.
Step 4: Read the Offering Documents With Your Own Advisers
United Exploration makes its offerings only pursuant to a Disclosure Memorandum, which contains important information about risks, fees, and expenses. Whoever the sponsor is, gather and review these items before committing capital:
- Offering memorandum: It should describe management, the drilling prospects, the terms of the venture, the use of proceeds, fees and compensation, tax treatment, and risk factors. An offering with nothing in writing is a red flag.
- Form D filing: Regulation D issuers file Form D with the SEC within 15 days of the first sale, and it is searchable through the SEC's EDGAR database. A filing confirms the issuer claimed the exemption. It is not SEC approval.
- Joint operating agreement (JOA): This governs how the operator and working interest owners share costs, revenue, and decision rights.
- Tax estimate: Ask for the estimated first-year intangible drilling cost deduction and whether the wells are expected to qualify in the current tax year. Intangible drilling costs typically represent 60% to 80% of a working interest investment.
Bring in a CPA familiar with oil and gas taxation and an attorney to review the memorandum and JOA, and do it before you sign. United's post on oil and gas tax deductions to discuss with your CPA can help structure that conversation. Walk away from offerings that promise guaranteed returns, use unregistered brokers, hide related-party transactions, or pressure you to invest before your questions are answered.
Step 5: Confirm How Revenue and Reporting Will Work After You Invest
Reporting matters for the full producing life of the wells, which in some cases can run forty years or more. Monthly revenue depends on how much oil and gas the wells produce, the prices those commodities sell for, and the operating expenses deducted before distribution. Ask the sponsor:
- When are first distributions reasonably expected, and how often are they paid?
- How are operator expenses deducted?
- Will you receive detailed revenue statements and a secure investor portal?
- How often will you get drilling, completion, and production updates?
- Who prepares the partnership tax return and Schedule K-1s?
Your Oil and Gas Investment Due Diligence Checklist at a Glance
How United Exploration Applies This Checklist to Its Own Projects
United Exploration runs the same questions on every project before it reaches investors. Each potential acquisition goes through geological, engineering, title, operator, and economic review. United evaluates the people responsible for the project, the quality and location of the assets, comparable well performance, total project costs, and the terms offered to investors, then models a range of production and commodity-price outcomes to test whether the economics hold up under less favorable conditions.
The team behind that work brings direct field experience:
- Morgan O'Neal, President, co-founded United Exploration, LLC in 2015 and has played a significant role in financing, drilling, and developing more than 250 oil and gas wells across the Anadarko, Delaware, Williston, and Fort Worth Basins, the Haynesville Shale, and the Woodbine and Austin Chalk Trends. He is responsible for identifying and underwriting investment opportunities and negotiating acquisitions.
- Jacob Jackson, CEO, previously served as Vice President of Operations for a Dallas-based exploration group, where he played an integral part in drilling and completing more than 20 wells in the SCOOP/STACK play of Central Oklahoma. All of the Oklahoma prospects drilled during his tenure were successfully completed.
United focuses on developmental drilling projects in proven fields with minimal dry-hole risk. The Anadarko Basin in western Oklahoma and the Texas Panhandle is its primary area, with the Northern Delaware portion of the Permian Basin as a secondary area of interest. Partner capital finances a portion of each investment, and United invests with its partners in the same project.
After funding, investors receive weekly drilling and completion updates while wells are under development, monthly revenue statements and distributions, secure online access to documents and tax records, and annual Schedule K-1s. The full scope is on United's services page.
Conclusion
A working interest in oil and gas wells can offer monthly income tied to real production and tax deductions that flow to your own return. The five steps above confirm whether a specific offering earns those benefits: qualify and check fit, vet the sponsor and operator, test the project's ownership and pricing, read the documents with your own advisers, and confirm how reporting will work for the life of the wells.
United Exploration, LLC welcomes that level of scrutiny and answers it with the same review it applies to its own projects. To discuss current partnerships, call (682) 651-1629 or contact the United Exploration team.
United Exploration offerings are made only pursuant to a Disclosure Memorandum and only to accredited investors as defined in 17 CFR 230.501(a).
Frequently Asked Questions
1. Why would a sponsor ask for my tax returns or a letter from my CPA?
Under Rule 506(c), issuers must take reasonable steps to verify accredited status. Common methods include reviewing two years of tax returns, reviewing bank or brokerage statements, or accepting written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed CPA, or attorney who verified your status within the prior three months.
2. How long does oil and gas due diligence usually take?
For an investor with documentation ready and a sponsor that provides materials promptly, review through commitment often takes one to three weeks. Pressure to close faster than you are comfortable with is worth questioning in itself.
3. Is it better to invest in early-stage or producing wells?
Each carries tradeoffs. Earlier-stage projects may offer greater tax deductions but involve more timing and execution risk. Later-stage projects may provide earlier cash flow but can have different economics and tax characteristics.
4. Do I still get a deduction if a well turns out to be a dry hole?
Intangible drilling cost deductions are generally available regardless of well outcome. Production revenue and the depletion benefit depend on the well producing, so confirm the specifics for your situation with your tax adviser.
5. Does a lawsuit against a sponsor mean I should walk away?
Not automatically. Oil and gas companies can be involved in ordinary commercial disputes. Repeated allegations involving misrepresentation, unpaid obligations, undisclosed conflicts, or mishandled investor funds deserve careful investigation and a satisfactory explanation before you invest.
6. What is the minimum investment for an oil and gas partnership?
Minimums are set at the offering level and vary by project. United Exploration discusses current partnership terms directly with qualified investors.
Subscribe to receive the latest blog posts to your inbox every week.
