Demand for Oil and Gas

Most people think energy when they hear the words Oil and Gas. However, the uses of hydrocarbons go far beyond supplying energy. Water bottles, tires for your cars, and tupperware for your kitchen, are all made from processed crude oil. The extensive uses of this natural resource make it a product whose demand is likely to remain high for a very long period of time. Adding to this demand are the emerging economies of two of the world’s most populated countries, China and India, which need massive amounts of energy to expand.

Developmental vs. Exploratory Drilling

There are two main types of Oil & Gas investments. Exploratory consists of searching for new reserves in unproven areas. The risks associated with this type of drilling are quite high, but so are the rewards. We prefer to recommend a more conservative type called Developmental Drilling. Developmental Drilling involves the rebuilding of pumps and machinery, and drilling new wells near sites of existing production. Many of the wells eligible for a Developmental program were constructed over 30 years ago, and considerable alterations can be made to increase current production. Developmental drilling goes after proven reserves with improved technology.

Benefits of Owning Oil & Gas Investments

Investing in Oil & Gas adds a hard asset to your portfolio that could provide immediate cash flow. It is also a great investment to add diversification within your portfolio. An Oil & Gas investment can help a portfolio during inflationary times, as the prices of Oil & Gas tend to increase with inflation. Beyond diversification and potential cash flow, the year in which you invest in Oil & Gas opens you up to tax advantages. RAM Financial Group does not give tax or legal advice, and you should always consult with your accountant to be certain, but a brief description of the tax benefits is listed below.:

• Intangible Drilling Costs (IDCs) – IDCs include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing wells for production. The costs of these activities can account for nearly all of your investment, and will offset current income. This benefit is extremely helpful for those that may have received a large cash distribution and would like to lessen their tax burden while gaining potential future and immediate cash flows.
• Depletion Allowance – Because Oil & Gas are natural resources that have a limited supply, the government incentivizes potential investors by applying the Depletion Allowance to offset taxes from potential cash flow.
• Depreciation Allowance – Because of the nature of tangible assets and their depreciating nature, the government allows you to write a depreciation allowance against any income you receive from the drilling program.

Location

Almost all of our Oil & Gas investments are onshore in the United States. The programs we use primarily drill in Texas, Oklahoma, Louisiana, and Indiana.

Structure of the Investment

The programs we recommend are usually structured as a Limited Partnership. No investments will ever be offered without a prospectus or private placement memorandum which outlines the details of the investment. When your dollars are invested into a limited partnership, the general partner, or sponsor, makes all the business decisions on behalf of you and the other investors called limited partners. The capital raised by the partnership is used to lease mineral rights for approximately 15 to 40 wells, and to operate, repair, update, and replace existing equipment.

After the rights have been attained, drilling and production should begin. You can earn cash flow (if any) from existing wells and share in expenses each month per well (based on your proportionate ownership of the program).