Texas Oil: The Best Tax Sheltered Investing
Oil investments in Texas oil remains an exciting opportunity for accredited investors. Oil prices are showing strength. For the first time in over three years, West Texas Intermediate oil prices traded over $70 a barrel earlier this year.
So, while supply is falling due to various international issues, demand is rising. And there’s no reason to believe it won’t continue to do so. The U.S. economy is hitting on all cylinders, which is good news for the oil industry, in particular, Texas.
Why Texas Oil Investing?
Despite all the excitement over solar, wind and other green energies, most countries are still using oil to power homes, cars, and industries. Texas is still one of the best areas for oil production, with the state producing 4.2 million barrels of oil per day - almost four times what the state was creating a decade ago. In fact, Texas produces three times more oil than any other state.
Texas has helped make the U.S. one of the leading producers of oil, thanks mainly to the largest oil-producing region in the U.S., the Permian Basin. The U.S. is still behind Saudi Arabia and Russia when it comes to oil production, but with the amount of oil coming out of Permian expected to double over the next half-decade, the U.S. will become the number one oil producing country in the world. In fact, IHS Markit says that the Permian will be producing 5.4 million barrels of oil per day in just five years, which is more than country today, other than Saudi Arabia.
How To Get Into Texas Oil?
Oil well investment opportunities in Texas is still underrated for many oil investors, yet it’s one of the great opportunities when it comes to protecting and growing wealth. Most notably, thanks to the tax breaks and incentives. Oil wells start generating income relatively quickly and can keep making money for years. All the while, investors get to write off the costs of extracting that oil.
Few public companies focus on Texas oil wells, and the other hangup is that investing in stocks and public companies doesn’t offer investors the tax advantages of direct investment. And forget mutual funds or royalty interests, to get the tax benefits, investors must own active interests in oil wells, allowing them to offset income, such as wages and capital gains, with any net losses from oil wells.
As well, investors can shelter some of their income with oil well investing. That is the depletion expense. This expense, also called a depletion allowance, can be used to reduce investors’ taxable income.
Investing in oil wells, to some extent, relies on oil prices. Higher oil prices could be on the horizon. The major Organization of the Petroleum Exporting Countries (OPEC) continue to keep supply in check. There are supply distributions in other oil producing countries like Venezuela, Libya, and Nigeria, which means oil prices could continue to rise as other countries with growing economies increase demand.
Tax Sheltered Investing
The U.S. government encourages investors to take a look at the oil industry. The government offers substantial tax breaks. And it’s paid off, with the U.S. now a powerhouse when it comes to oil production.
Investors can deduct just about everything oil well related to reduce taxes. This includes intangible drilling costs, such as labor and chemicals, and tangible costs like equipment, which is depreciated over some periods.
The costs, tangible and intangible, are 100% deductible for investors. This is allowed whether the well produces any oil or not. Any expenses beyond drilling are deductible, which includes leasing, legal and accounting costs.
Then there’s the depletion tax break, which allows investors in smaller oil production companies to have 15% of gross oil well income excluded from taxation. Think of this depletion allowance as a special tax break, one of the greatest that the U.S. government has to offer. As long as your ownership is limited to smaller oil producers, investors can exclude 15% of gross oil well income from federal taxes. A somewhat significant tax break.
Direct oil well investing, of course, doesn’t come without risks. Accredited investors, however, are generally well-equipped to deal with the risks and have interest, capital gain and related income that can offset with any oil-related losses. Oil well investing might be considered one of the riskier ways to invest in the oil market, but it does offer the most significant return on an investment opportunity while providing a substantial tax shelter.
Oil Well Investment Opportunities Available
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Drilling for oil in the U.S. continues to be a boom. However, finding opportunities isn’t as easy as it once was. The stock prices of many publicly-traded oil companies have not returned to pre-2014 oil crash levels.
Still, there are smaller oil well drillers that survived the oil crash of 2014 and are now stronger than ever. And the tax benefits of investing in oil are also stronger than ever. The overhaul of the U.S. tax code last year left in place all the key tax breaks provided to investors owning a direct stake in oil wells.
Directly investing in oil wells remains one of the best tax advantaged investments around, especially as oil gets closer to $100 a barrel. Accredited investor opportunities in the current market still include the likes of real estate and the stock market, but if you’re looking for tax-deductible investments, the best place to look is oil drilling.
Shale companies drilling prolific wells in the fast growth Texas areas, including the Eagle Ford shale and Permian Basin, are still investing heavily in finding new wells. There are still opportunities to be found.
Oil output in the U.S. is at all-time highs, hitting 10 million barrels a day and closing in on the dominance of Saudi Arabia and Russia. This presents accredited investors with a unique opportunity.
U.S. Oil Stronger Than Ever
The U.S. has managed to take global oil market share as the powerhouses, Russia and Saudi Arabia, have cut supply. Venezuela’s oil production has fallen off a cliff over the last three years, further opening the door for U.S. oil production. Then there’s the near-term catalyst that can give U.S. producers another boost, Iran. This is a top 10 oil producing country, but it’s facing sanctions by global superpowers that threaten to put pressure on the oil supply in the Middle Eastern country.
The U.S. is more than making up the slack. Oil being drilled from U.S. shale plays has more than offset the international decline. With more declines in international oil production expected, the U.S. is poised to continue increasing production.
One catalyst for U.S. oil drillers is the continued infrastructure investments. U.S. oil investments like pipelines will help bring even more supply to the global market in the future.
The Benefits Are Real
The tax benefits afforded to oil investors are some of the best among all investment opportunities. The top three reasons for oil investing among accredited investors include three very appealing tax benefits. The first is probably the most exciting, the depletion allowance for small producers. If you invest in an oil well that produces less than 50,000 barrels of oil a day, the U.S. tax code will allow you to exclude 15% of your gross oil income from taxes. That’s not a deduction against taxable income, but an outright exclusion.
Then there are the drilling costs. The cost of drilling and producing the well can be used to reduce oil income. Along those lines, the second major tax benefit is intangible drilling costs. These costs make up the majority, over two-thirds, of the typical cost to drill and produce a well. Included here are labor, chemicals, and other expenses. All these expenses are 100% deductible in the year incurred. Investors can actually get the benefit of these intangible costs in the first year even if the well doesn’t start producing oil.
The third tax benefit is being able to reduce the tangible drilling costs. This is direct costs of oil drilling. Investors can use the cost of equipment to reduce income, to the tune of 100% of the cost, depreciated over several years.
Accredited Investors Have A Powerful Advocate
The U.S. government supports the development of oil independence. When it comes to investing in oil wells, it doesn’t matter how much money you have, in fact, the more the better. There are no limitations on income levels when it comes to taking advantage of the tax benefits oil well investing.
The U.S. government offers enticing tax breaks to convince investors to buy directing into wells and small oil producers. The drive to become energy independent is real. And U.S. oil companies are expected to keep churning out oil. New technology and innovations are making well drilling quicker and more efficient.
Sure, you can “invest” in oil with stocks or mutual funds, but this isn’t direct oil well ownership. Thus, you don’t get the tax advantages. The best investment opportunity for accredited investors remains in oil wells.
We could finally be back on a path to over $100 a barrel, a number we haven’t seen in almost half a decade.
While $100 oil doesn’t sound like a positive for your daily commute, it is good for oil investor portfolios.
Oil prices have been in a tough place since the mini-crash in 2014. What’s helping push oil higher now is a right-sizing of supply-and-demand.
Many of the major producers in the Middle East have curbed production, and production from other international sources could fall even further.
Venezuela’s oil output is falling the country continues to experience unrest. Once a top 10 oil producing country, the U.S. Energy Information Administration (EIA) shows that Venezuela’s oil production has fallen 30% in the last two years. A decline that’s expected to continue as the country struggles to keep oil companies happy given delayed and missed payments.
Then there’s the recent U.S. withdrawal from the Iran nuclear deal, which could further lower global oil supply. With U.S. sanctions of Iran back in play, the demand for Iranian oil is in jeopardy.
Oil demand is expected to outpace supply heading into 2019. This could push the price of oil to above $100 a barrel in the next year.
But this comes even as U.S. shale production is still growing at a brisk pace. The U.S. is now producing over 10 million barrels of oil per day for the first time since 1970.
Texas Oil Well Drilling Still Booming
Production is booming in Texas oil wells and across the major U.S. shales. Oil produced from U.S. shales, which is part of the country's onshore oil production, is expected to break a record in June, with the Energy Information Administration (EIA) projecting 7.18 million barrels per day in production.
Driving that growth in Texas.
Texas oil wells have been a boom, calling home to in the most productive U.S. shales. This includes the Permian Basin, the largest shale in the country. Oil production from the Permian is expected to account for over 45% of the U.S. shale oil output next month. More pipelines in the Permian basin are coming online in the next couple years, which will support the ability to bring even more Texas oil to market for meeting demand.
The second largest U.S. shale, the Eagle Ford in South Texas, which will hit 1.39 million barrels of oil in daily output next month. This is the most oil coming from the Eagle Ford since February 2016.
But it’s not just Texas, there’s the Bakken shale in North Dakota. This shale will hit its highest output since June 2015, with expected production of 1.24 million barrels a day.
Tax Smart Oil Investing
For investors looking to take advantage of higher oil prices, directly investing in oil wells offers the best tax breaks in the industry. More importantly, these are the best tax breaks of nearly any industry you’ll find.
The government doesn’t offer such aggressive tax incentives for any other industry. That’s because the government encourages oil industry investing. The idea is to encourage investors to invest directly in oil wells, ultimately to help the U.S. become energy independent.
But you won’t get these type of benefits from investing in large oil companies. These tax breaks and incentives are reserved for small companies. The government encourages direct investment in small oil companies.
The rewards, or tax breaks, for investors include hefty deductions that can reduce income, and in some cases offset wage taxes or capital gains taxes of other investments.
To start, oil wells investors can take advantage of the intangible expenditures of drilling. This includes chemical and labor costs, which can be upwards of 80% of the cost of a well. All of these are 100% tax deductible for investors starting in the first year the money was invested. Then there are the tangible drilling costs, which includes equipment and can be deducted as depreciation over a period of years.
But perhaps the most prized tax break is the oil depletion tax deduction.
This is one of the most important tax incentives for oil companies. The 1990 Tax Act allows investors who have invested directly in small oil companies to exempt 15% of their income from federal taxes.
Investing directly in oil wells is one of the best investments for accredited investors, especially considering the ability to tax-sheltered income. It reduces an investor’s tax burden, but also provides unique upside as oil prices chart a course for getting back to over $100 a barrel. As oil prices head higher, it’ll also bring stronger returns on investment for oil wells. A win-win for investors; higher returns and unrivaled tax breaks.
Texas Oil and Gas Investment Opportunities
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Oil and gas demands continue to increase due to most countries relying on this form of energy to run vehicles, businesses and many other industrial sectors. Investing in energy sources such as oil and gas can create a substantially high ROI. Besides financial gains, investing in oil and gas also has great tax benefits, and investing in oil and gas is critical to ensuring that the growing populations has access to the energy that will be needed in the future.
The Growing Demand for Oil And Gas
Oil and gas currently are and will continue to be the foundation for the global energy supply for many decades to come, despite the growing transition to green technologies for energy production. With the predicted energy demands by 2040, oil and gas will still have to meet 22% of this demand. The dependency on oil and gas resources will be the highest in about two decades from now.
To Increase the Production Power
With a growing demand for oil and gas resources and a decrease in production, the oil and gas industry has to continue to find new resources to meet the need. The oil and gas investments in Texas enable shale owners to increase their drilling and fracking activities to find more reservoirs and create a balance between demand and supply in future.
To Reduce CO2 Emission
Natural gas, when used instead of other fuel sources such as coal can reduce the CO2 emission into the atmosphere by half, and become a more environment-friendly way of producing electricity. Gas can also be used with other renewable energy sources such as solar or wind to increase energy production in tandem as well.
United Exploration, LLC leverages decades of industry knowledge to provide high-yield investment opportunities to its oil and gas investment partners. If you are interested in how to invest in oil and gas, contact us today by filling out the form on this page or give us a call.
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The best accredited investor opportunities often include tax-advantaged investments. One of which is oil well investing. The U.S. is quickly growing into an oil powerhouse, with the country expected to overtake Russia as the world’s largest oil producer by 2019. The growth in Texas crude oil production volume is almost single-handedly driving this growth.
There’s never been a better time for accredited investors to invest in Texas oil wells. Well, other than say 1901 when the first Texas oil boom started with the Spindletop oil field. But as the Chinese proverb goes, "The best time to plant a tree was 20 years ago. The second best time is now."
The U.S. Becomes Oil Powerhouse
We’re now seeing a steady growth in oil production volume coming out of Texas following the mini-oil price crash from 2014. The road back to $100 a barrel oil may well be shorter than expected.
Oil prices are now at the highest levels since that crash a few years ago. There are a few things working in oil’s favor here. First, renewed geopolitical worries from overseas are lifting oil prices as buyers get worried that supply could be hampered if there is upheaval in major oil producing countries like Saudi Arabia. As well, potential U.S. withdrawal from the Iran nuclear deal could lead to renewed sanctions on the major oil exporter.
Meanwhile, the U.S. is still going strong when it comes to oil production. There’s virtually no geopolitical risk and there’s a lot of oil still in the ground, especially in Texas. So the U.S. is poised to pick up the slack as other countries see a decrease in oil production.
Texas Oil Production Volume Stronger Than Ever
For accredited investors, Texas oil wells continue to be an enticing way to invest large sums of money. And not just because of the tax breaks that oil wells provide. Next month is expected to bring another consecutive month of rising U.S. oil production and Texas is leading the way.
The U.S. Energy Information Administration, the authority when it comes to energy production in the U.S., says that record production is being driven by growth in the Permian Basin in Texas. Digging into the numbers, this could be an understatement.
Oil Plays In Texas
The Permian, which covers most of west Texas, is the largest oil play in Texas, but more importantly, it’s the largest in the U.S. The oil production coming from the basin is nearly 3.2 million barrels per day. That’s the most oil coming from the Permian since they started keeping records in 2007.
Then there’s the second largest shale play in the U.S., which is also in Texas. The Eagle Ford shale, covering southern and parts of eastern Texas, is currently producing over 1.3 million barrels a day.
Texas oil is huge. For context, total U.S. oil production is running at about 7 million barrels per day, and just these two Texas shales are generating nearly 65% of the entire country’s output.
Texas is the top oil-producing state in the country and has been for years. There are oil fields spread across the entire state and with its abundance of sunny days, there are no drilling bottlenecks related to adverse weather, like you might find in in the Bakken Shale up in North Dakota.
Reserve wise, there’s still plenty of oil well opportunities within Texas. Texas has nearly 13 billion barrels of oil reserves, which is the amount of oil that’s estimated to still be in the ground and about 40% of the entire reserves in the U.S.
Texas’ stat sheet when it comes to oil production volume speaks for itself.
The investor opportunities in today’s markets are a bit limited given the all-time highs of the stock market. For accredited investors, investing in Texas oil wells is still very interesting. Oil wells are tax-advantaged investments that provide ways to tax shelter income while offering exposure to one of the best oil markets in the world.
Oil and Gas Investment Opportunities
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Sophisticated investors looking to make big investments are increasingly faced with limited opportunities.
The bull market for stocks is six months away from being the longest bull market in history. Stock prices are at all-time highs and catalysts that can push them even higher are running low.
Then there’s fixed income, where yields on bonds, Treasuries, and savings accounts are at decade lows.
But one area is still enticing; oil wells remain some of the best investments for accredited investors, especially with the big tax breaks offered.
You’ve probably heard of the lucrative oil wells in Texas. The worry might be that oil well investing is “played out.” Rest assured, there’s still plenty of investment opportunities here. Texas calls home to big name billionaires for a reason. The state houses the biggest oil finds in the country.
Most of Texas’ billionaires got their start in the oil industry, including Robert Rowling, who used his oil money to buy both Omni Hotels and Gold’s Gym. Jerry Jones parlayed his oil and gas profits into buying the Dallas Cowboys.
Jones also got back into oil after last month, investing $75 million into Comstock Resources, a Texas oil driller, and explorer.
But, with the help of President Donald Trump and his administration's new policies, there are plenty of new oil well opportunities for investors. The government is opening up new areas for drilling, which include Alaska and Utah. And there’s already been strong demand from oil investment companies to drill in these areas.
Oil Drilling Investments Are Tax-Advantaged
But why do billionaires choose to invest directly in oil wells instead of using mutual funds and the like?
The biggest reason is tax breaks. Now, these don't tax loops, these are tax deductions and exemptions that the Federal government wants you to use.
First - oil companies can deduct intangible drilling costs. These intangible costs are all the costs to drill, except the actual drilling equipment. They include labor and chemicals costs an average 75 percent of the total drilling costs. All tangible drilling costs are 100 percent deductible thanks to a tax provision that’s now over 100 years old. Regardless of whether the well produces oil or not, these deductions are still allowed.
Second - there are the tangible drilling costs. This is the actual drilling equipment costs, also 100 percent deductible, but depreciated over seven years. For high net worth individuals investing directly in oil wells, they can use any losses during the early years of oil drilling to offset other sources of active income, such as capital gains and salary.
Third - there’s the most prized asset for oil drilling investments, known as the depletion allowance. The 1990 Tax Act allows 15 percent of an investor’s oil well gross income to be exempt from federal taxation. As long as the individual limits their ownership to 1,000 barrels of oil per day, they’ll get this 15 percent tax exemption.
The Newest Big Tax Breaks
Tax breaks for the oil industry are getting better and better as the Trump administration continues to push for energy independence in the U.S. The goal is to encourage the buildout of a strong energy infrastructure, and oil companies need capital to do that. The government is making investments in oil companies even more tax-advantaged to attract that capital.
Passed just before the New Year, the tax laws got their first major reform since the 1980s. The corporate tax rate has moved from 35 percent to 21 percent. But the bigger news for oil investors is that the rate for pass-through entities is now capped at 20 percent, instead of being taxed at the personal income rate. For investors that can’t invest directly in oil wells, this makes partnership investing a viable opportunity.
The government also kept all the original tax breaks mentioned above intact.
Oil drilling investments are looking better than ever. Oil prices have found a floor of sorts, although we’re still only a couple of years removed from the quick crash in prices. But with the now staple price environment, companies that have been putting off investing will likely look to deploy capital in new oil well opportunities. It should be considered the fortuitous timing for investors as well, especially now that the big tax breaks are safe following the tax reform.
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Natural Gas Investing
Natural gas is often overlooked when it comes to exploration and drilling partnerships. Oil often gets the spotlight. But, with the recent administration changes, it could be time to take a closer look at what natural gas wells can offer investors.
Natural gas has come a long way, formerly being a byproduct of oil production — something that was burned off while drilling for oil. Now, gas wells are just as lucrative as oil wells. This comes as the demand for natural gas and liquefied natural gas is booming.
It’s time to take a closer look at natural gas investing. Specifically, investing in natural gas partnerships, which not only offer exposure to a booming industry but also provide generous tax breaks.
Best Investment Opportunities In The Oil And Gas Industry
When considering accredited investor opportunities, oil and gas offer the best tax incentives among all the industries in the U.S. But natural gas, right now, looks especially enticing. This comes as low natural gas prices have helped boost demand nicely.
Natural gas is low-cost resource that’s abundant in the U.S., making the country a great exporter of the commodity. And there are plenty of buyers. Major countries are shifting toward greener energies as natural gas burns much cleaner than coal energy.
The ability to invest in natural gas wells in the U.S. looks to be an underrated opportunity right now. The U.S. is expected to be the number one exporter of liquefied natural gas over the next several years. The country has a massive base of natural gas shale reserves, but also has the technology, thanks to horizontal drilling and hydraulic fracturing, to extract natural gas quick and efficiently.
Trump Administration Is A Tailwind
Donald Trump and his administration will continue to be a tailwind for the oil and gas industry. First, there is the new tax reform bill signed into law just before the new year. There are new tax rates that will be very advantageous for the oil and gas industry.
However, it’s the Trump administration’s energy policy that could make investing in natural gas royalties very lucrative. Trump is a major supporter of increasing natural gas exports. Last year, the U.S. became a net exporter of natural gas, having sold more natural gas to other countries than it used.
Trump’s administration wants to make America energy dominant and building a strong natural gas export program is the first step. He’s been building terminals and infrastructure to export natural gas across the globe. The widening of the Panama Canal is a big step for opening the door for more gas exports out of the Gulf of Mexico to Europe and Asia. Beyond the energy reform, there’s also the tax reform.
The oil and gas industry has long held some of the best tax-advantaged investments. The oil and gas tax breaks can help accredited reduce their taxable income. These tax advantages have gotten even better following the new tax reform.
The tax benefit of oil and gas investments has long included special deductions, with the best ones being Renewable Fuel Standard and the depletion allowance. Both of these were kept in the new tax bill. The Renewable Fuel Standard offers a depletion allowance for intangible drilling costs like well preparation. Then there’s the depletion allowance, which allows 15% of oil and gas well income to be completed excluded from taxation.
The tax reform keeps both of these intact for oil and gas well investors. But it also adds a new twist — a very positive twist — for investors. The tax rate for pass-through entities, including oil and gas partnerships, will now be even lower. Instead of previously being taxed at the personal income rate, pass-through tax rates will now be 20%.
Investing in gas wells will continue to provide tax-sheltered income, but it also offers enticing upside beyond other industries in the energy sector. This starts with the implied backing of the President of the U.S., but natural gas will also be a sound investment for decades. The U.S., and the natural gas exploration and drilling partnerships, are uniquely positioned to benefit from a growing demand for greener energies.
ROI is an acronym that’s used in just about every industry, including Texas oil and gas drilling. ROI stands for “return on investment.”
It’s one of the easiest ways to compare returns across industries and investment opportunities. It shows you the percentage return on your investment, considering the amount of capital you put at risk.
So, if you invest $100,000 in an opportunity, and end up making $150,000 over the life of the project, the ROI is 50%.
Now, we’ve been in a low-rate environment for a while now, so a 50% return probably sounds absurd. The current 30-year Treasury offers a yield of 3.1%, which is well below the historical average, and at the same level, it was five-years ago.
Decent yielding investment opportunities for accredited investors are getting harder to find, likely feeling impossible. That has led many investors to take a look at the oil and gas market, where returns can be impressive and correlation to the stock market is low. That can mean higher returns and fewer ups and downs.
Now, most advisors tout the tax benefits of oil and gas well investing - and these tax breaks are very enticing - but another aspect is the strong ROI you’ll find from many of these projects. One of the big questions many accredited investors ask when looking at investing directly in oil and gas projects is; where are oil prices headed from here?
Oil Prices Are Only Half The Story
The oil price environment has been tough for a couple years; although, oil prices are showing signs of stabilizing. It’s been almost two years since oil traded at nearly $30 a barrel. With supply cuts and the rightsizing of drilling, oil prices have doubled.
Still, while it’s tough for individual oil and gas well drillers to manage oil prices - other than with hedging - accredited investors can benefit from increased ROI thanks to new drilling techniques and a management team that, well, knows what they’re doing.
When it comes to generating a strong ROI, Texas oil and gas production companies are able to boost the ROI for projects with strategic land choices and choosing the appropriate drilling technique, whether it be unconventional shale or conventional filed drilling.
Historically, oil and gas wells are able to generate outsized returns for investors. But this assumes that the oil and gas investment company has a strong management team.
Understanding The Oil And Gas ROI
For oil and gas investors, there’s more than stock prices and dividends to consider. Investors that have an active ownership in oil wells have greater upside potential, but also have a more vested stake in the inner workings of their investment. That is, there are many components that investors should consider when hoping to get the highest ROI.
When considering investing in oil wells, the biggest part is how efficiently and quickly the commodity can be extracted. When looking for the best ROI deal, investors should consider the technology and drilling techniques used. A capable management team is very important. It’s necessary to look for managers and leadership teams that know how to target wells that can produce n the shortest timeframe, which means they know how to set up infrastructure fast and effectively to get oil flowing as quickly as possible.
So, if you want the best ROI deal when it comes to selecting the best oil company to invest in, look for a proven manager.
These days, just investing in oil wells is only half the battle - yes, you’ll get the massive tax deductions, which includes the 15% of income that’s completely tax-free and you’ll get a large deduction for oil well expenses that can be used to offset your ordinary or other investment income. But finding the best ROI deal also means looking for opportunities where new drilling technology and techniques can be used to start generating money faster from your oil well investments.
Then, couple this with the tax breaks and your ROI - compared to that of investing in an oil and gas stocks - becomes even more attractive.
Stock market returns can be volatile for years. But with investing in oil wells, you can do a little due diligence to get the best ROI deal and then you’ll be set with years of passive income that also provides very beneficial tax deductions.
We look forward to speaking with you today and becoming your investment partner. Contact us today.
Oil and Gas Investor Tax Benefits
Tax-advantaged investments aren’t just for the ultra-wealthy. There are opportunities for accredited investors within one particular industry - oil and gas. Yes, the industry took a major hit when oil prices tumbled in 2015.
Things have since stabilized, and after a flushing out of the heavily indebted and inefficient operators, what remains are the more stable companies. Investors now have the opportunity to invest in an industry that still looks undervalued, with many investors avoiding the market all together.
The U.S. actually wants investors to help with funding for oil and gas projects. They have created vast tax incentives for oil companies. It’s an industry where accredited investors can create tax shelters by tapping into large tax deductions not found in any other industry.
There are plenty of deductions for oil and gas investors. Most of the tax deductions afforded to investors are able to be used immediately. These include intangible expenditures like labor, drilling expenses, and chemicals. Called ‘intangible drilling costs’ these are all deductible immediately and can make up 80% of the well cost.
Then there are the ‘tangible drilling costs,’ such as the cost of the drilling equipment, which is also 100% tax deductible but has to be done so over a seven-year period. There’s also depletion expense that will reduce income, but the biggest advantage to investors comes thanks to the 1990 Tax Act. This Act allows oil and gas companies that produce less than 50,000 barrels of per day (and/or less than 1,000 barrels of gas) to exempt 15% of their gross income from federal taxes. No other industry or company can tap into such a tax break.
Is It A Good Time To Invest In Oil?
From an investment perspective, the oil and gas industry hasn’t looked great - at least when you view it from the stock market angle. But, as mentioned above, investing directly in oil and drilling operations provides benefits that go beyond that of the stock market.
Investing directly in oil and gas is one of the best, and relatively unknown, accredited investor opportunities. When oil prices fell in 2015, many investors fled the industry and haven’t looked back. That’s their loss. Oil companies are being ignored, even as worldwide production has been reigned in, helping stabilize prices as supply normalizes. The worst appears over and the U.S. is still on its quest to be energy independent, giving big incentives to oil and gas companies that need to attract investors.
Geopolitical uncertainty will continue to be a driver for independent oil and gas production within the U.S. As a country, the U.S. doesn’t want to be beholden to overseas turmoil. Lest we forget that despite the talk of renewables oil and gas still account for over 60% of energy production in the U.S.
Best Oil And Gas Investments
It might be time to invest in oil. The opportunities in oil and gas industry are somewhat vast, with plenty of oil and gas drilling stocks that investors can buy via major stock exchanges. There’s also oil and gas-focused mutual funds. However, neither of those offer the tax shelter benefits that investing directly in oil and gas wells provides.
But don’t confuse investing in oil and gas wells with royalties. Royalties are paid to landowners. Companies that invest in, and own, land where oil and gas wells operate get paid a percentage of revenue from well production. However, royalty investors get none of the key oil tax deductions.
The best way to capitalize on the oil tax deductions is via working interests and direct participation. By owning an interest in a well, investors get all the major tax benefits - including the 1990 Tax Act - and can even use losses to offset wage income and other capital gains.
Tax advantages aren’t just for the ultra-wealthy. Oil and gas is still a greatly under-appreciated and tax-advantaged investment. This industry can act as a tax shelter for investors. The U.S. government offers direct tax benefits. And the big thing that separates the oil and gas industry tax breaks from other industries is that they are up-front and immediate. Ask us about the partnerships in the lucrative Texas oil fields that we just opened up to investors.
We look forward to speaking with you today and becoming your investment partner. Contact us today.