Investment Opportunities in Energy

When it comes to high-yield investment avenues, oil investments are a class of their own. The US Energy Information Administration recently revealed US oil inventory drawdown figures that are way beyond everyone’s expectations, projecting a notable surge in US Crude and Global Brent oil prices. US crude oil production increased from 5.6 million barrels per day (b/d) in 2011 to 8.8 million in 2014. The production, however, has slowed in the recent past, whereas the demands continue to soar. During 2015, US crude oil production averaged 9.2 million b/d, whereas the figure is expected to drop to 8.7 b/d during 2017. Given the odds at play, it would be safe to say that oil and gas represent a high return and largely sustainable investment option for qualified investors. Continuing the discussion further, in this post, we cover some of the benefits investors stand to realize from oil and gas.

IDC Tax Deduction
Intangible expenses in drilling, such as chemicals, labor, and water etc. are about 65 to 80 percent of the cost of the well. The Intangible Drilling Cost (IDC) is 100 percent deductible in the first year, which means that an investment of $100,000 could deliver up to a $75,000+ tax deduction. The deductions are to be shown in the year the money was invested, even if the drilling started after 31st March of the next year.

TDC Tax Deduction
The Tangible Drilling Cost (TDC) is the total amount invested in equipment, and is 100 percent tax deductible. TDC is a substantial expense that includes the cost of drilling equipment, such as casings, wellheads, and other machinery used in oil production. Unlike IDC, TDC is capitalized and depreciated over a period of 5 years.

Active vs. Passive Income
The Tax Reform Act of 1986 introduced the concept of “Passive” and “Active” income. According to the Code, the ‘Working Interest’ in oil and gas wells is not a passive activity, and therefore, deductions are offset against income from active stock trades, salaries, business income, and other income sources. As a result, an investor is permitted to deduct working expenses of an oil well (even if it is not managed directly) against their regular income.

Small Producers Tax Exemption
“Percentage Depletion Allowance” is a tax incentive to attract companies and individuals in oil and gas drilling. The 1990 Tax Act extends the special tax advantage only to small companies that process less than 50,000 barrels per day, or those clocking less than 1,000 barrels of oil on an average in daily production. The exemption makes 15 percent of the gross income from oil and gas tax-free.

The Bottom Line
Oil and gas investments represent a rewarding opportunity for qualified investors with an appetite for long term cash flows. But to make the most of the strategy, investors need a reliable partner that has the relationships and experience required to ensure a steady flow of income with minimal risks. FIG Tree Capital Ventures, LLC. is one such company. For more than three decades, we have provided our partners with fundamentally-sound direct investment opportunities in the Energy sector in Texas energy projects. If you wish to learn more, our investment advisors would be happy to guide you on our energy projects in Oklahoma, North Dakota, and Texas. Simply call (866) 304-9194 or fill out our contact form.

Related Posts