Investing in Oil Drilling Operations
Why Consider Investing in Oil & Gas
Intangible drilling cost deductions (IDCs)
Section 263(c) of the tax code allows intangible drilling costs to be deducted from current year taxable income.
Tangible drilling cost deductions (TDCs)
Expenses associated with durable equipment and machinery can be depreciated over a seven-year period, leading to additional tax deductions.
Depletion allowance deductions
Acknowledges that an oil well's production gradually reduces over time. This allowance lets investors deduct a certain percentage of the income derived from the sale of the oil.
Percentage and excess depletion deductions
In the US, a smaller oil or gas company can qualify for a percentage depletion of 15% on the first 1000 barrels of daily production.
Additional potential tax credits
There are the potential for tax credits if an oil well provides marginal or low-output. These credits can help offset any loss due to the maintenance of these less productive wells.
Oil Quality & Location Benefits
Gulf Coast Basin
The Future of Oil Use and its Implications
The global economy continues to be heavily reliant on oil, and this trend is projected to continue well into the future. With increasing demand from growing economies and industries, the pressure on oil production and prices is likely to persist.
These are just a few examples, but they illustrate the pervasiveness of oil in our everyday lives and the importance of understanding the impact of its production and consumption.
Oil and gas serve as key raw materials in the production of plastics, playing a crucial role in shaping the modern world through their contribution to diverse applications and industries.
Oil and gas are essential for fueling transportation, industries, and generating electricity worldwide.
Oil and gas play a significant role in the manufacturing of cosmetics and personal care products, contributing to their formulation, texture, and overall performance.
Oil and gas are utilized in the production of pharmaceuticals and medical equipment, contributing to advancements in healthcare and improving patient outcomes.
Oil and gas are instrumental in the textile industry, providing raw materials for synthetic fibers, dyes, and finishes that are used in the production of clothing and textiles.
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OIL AND GAS INVESTMENT RISKS:
PRIVATE INVESTMENTS IN OIL AND GAS ARE HIGH RISK, INCLUDING, BUT NOT LIMITED TO THE FOLLOWING CONSIDERATIONS:
POLITICAL RISK – FEDERAL OR LOCAL GOVERNMENTS COULD ENACT REGULATIONS/LEGISLATION THAT COULD ADVERSELY AFFECT THE OIL AND GAS INDUSTRY, THEREBY NEGATIVELY AFFECTING YOUR INVESTMENT.
GEOLOGICAL RISK – OIL AND GAS PRODUCTION CAN BE NEGATIVELY AFFECTED BY THE DIFFICULTY OF EXTRACTION AND THE POSSIBILITY THAT THE ACCESSIBLE RESERVES IN ANY DEPOSIT WILL BE SMALLER THAN ESTIMATED. THERE IS NO GUARANTEE THAT ANY DRILLING OPERATION WILL BE SUCCESSFUL.
SUPPLY, DEMAND, AND PRICE RISK – A REDUCTION IN OIL AND GAS PRICES, A DECREASE IN DEMAND, OR A SURPLUS OF AVAILABLE SUPPLY CAN REDUCE OR EVEN ELIMINATE INVESTMENT RETURNS.
COST RISK – UNEXPECTED OR INCREASED OPERATING EXPENSES CAN REDUCE OR EVEN ELIMINATE INVESTMENT RETURNS.
DIVIDEND CUTS – ANY DIVIDEND PAYMENTS CAN BE REDUCED OR ELIMINATED IF THE COMPANY IS UNABLE TO EARN ENOUGH REVENUE TO FUND THE PAYMENTS TO INVESTORS.
OIL SPILL RISK – IN ADDITION TO THE COST OF REPAIRS, CLEAN UP, POTENTIAL FINES, AND POTENTIAL LITIGATION, OIL SPILLS CAN NEGATIVELY AFFECT THE REPUTATION OF THE COMPANY, ALL OF WHICH CAN REDUCE OR ELIMINATE INVESTMENT RETURNS.
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