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.
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