The Oil & Gas industry may have a “boom and bust” reputation among many, where fortunes have been won and lost over decades due to an array of factors often out of the investor’s control. Yet, the industry remains a compelling option for many investors, as it has the potential to provide certain advantages that other investments may not.

Investors can access the industry by buying stocks or bonds in publicly-traded energy companies, or they can opt for private investments that offer them direct ownership in drilling programs, producing wells, or mineral rights leases, for example.

Common benefits many qualified investors we’ve worked with cite with private Oil & Gas investments include:

• Diversification. Private Oil & Gas investments are generally not subject to the public markets’ influences and movements, which can help provide greater portfolio diversification and potentially reduce volatility.
• Inflation Hedge. Since commodity prices generally increase along with rising inflation, Oil & Gas investments can help provide portfolio preservation where other investments like stock and bond returns have the potential to erode.
• Returns. While Oil & Gas investing may entail greater risk than other more traditional investments, certain programs have potential to deliver favorable returns.¹

Tax Advantages 

Oil & Gas investments can also offer investors several compelling tax advantages, depending on the type of strategy selected. Here are three commonly known private Oil & Gas investment programs:

• Drilling Partnerships
• Direct Investments in Working Interests
• Direct Investments in Royalties

If you invest in a drilling partnership, you can deduct 100% of the intangible drilling costs in the first year you invest. Intangible drilling costs include labor, mud, drilling fluids, etc., representing 60% or more of the overall drilling expense. Over seven years, you can also deduct 100% of tangible drilling costs, which relate to general equipment expenses.¹

Also, because investors in working Interest programs are deemed passive investors by definition in the Tax Reform Act of 1986, they can offset their losses from this passive investment activity against other business income, stock gains, salaries, etc. 

Another tax incentive, known as the percentage depletion allowance, is available for individuals and small companies. This benefit allows small producers (under specific requirements) to exempt 15% of the gross income of a producing property from taxation.²

Learn More

We have highlighted several of the potential benefits of investing in private Oil & Gas programs. However, you must understand the associated risks that can be greater than other types of investments. Therefore, we encourage you to meet with an experienced advisor to understand all risk factors and benefits before investing.

Please call us at 916.965.1879 if you would like to learn more about Oil & Gas investing and the programs we currently offer.

Sources:

¹ Potential cash flow, returns and appreciation are not guaranteed.

This is for informational purposes only and does not constitute individual investment advice. Bangerter Financial does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal.

Oil and gas offerings may involve a high degree of risk, such as speculation, the potential loss of your entire investment, and illiquidity. These types of offerings are also subject to political, geological, price, supply and demand, and cost risks.

Potential cash flow, returns and appreciation are not guaranteed. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.

Investment advisory services offered through Bangerter Financial Services, Inc. A state Registered Investment Advisor. Registered Representative and securities offered through Concorde Investment Services, Inc. (CIS), member FINRA/SIPC. Bangerter Financial Services, Inc. is independent of CIS.