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.
Are You A Private Investor Looking For Projects?
Call Us Today: (682) 651-1629
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
Call Us Today: (682) 651-1629
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.
Call Us Today: (682) 651-1629