Posts
Do you think big oil companies make tons of money when the price of a barrel of oil goes up? Think again. In fact, much of the money paid for a barrel of oil goes to investors who take the risk of funding the drilling of oil wells. Many of these are accredited investors, individuals who meet Securities and Exchange Commission (SEC) established minimum wealth qualifications.
Let’s look at a typical independent oil and gas well investment/project.
These investments are put together by a producer. The producer can be considered the overall project lead responsible for securing the drill location with the land and mineral rights lease owners, finding an drill operator, funding the well with investors, filing all legal paperwork, arranging sale of the oil when the well goes online, and dispersing the resulting revenues to all parties.
Once an oil producer puts together a prospective oil and gas investment, accredited investors are approached to invest most of the funds. The producer may, and should have funds invested in the investment as well. Once the well is drilled and put online, then the resulting barrels of oil are sold to a refinery, usually a big oil company. At this point, the oil company refines the oil into products that are sold to users (gasoline, heating oil, petroleum products, etc.). The big oil companies make their money by selling the end product higher than the cost of refining and distributing it.
Before a well is drilled, a lease is purchased from the land owner that grants rights to the producer to drill a number of wells on the specified area of land. The lease entitles the lease holder to get a fee for each well that is drilled, along with a percent of revenues resulting from the sale of oil from each well. Typically these leases cover thousands of acres of land so the resulting revenues can be significant once all the associated wells are drilled and put online. Usually these leases are purchased by oil companies, but sometimes are purchased by a group of investors
Typical split for oil/gas revenues from a well:
Once a well is drilled and oil begins to be sold, there are expenses related to operation of the well and transportation of the oil to a refinery. These expenses are paid first and the resulting funds paid to the various parties involved. Parties and their typical percentage of the net revenues are: Landowner 12.5%, Leaseholder (Oil company usually or a group of investors) 12.5%; oil well investors 70 -75% which may include the producer’s investment in the well. On some wells there will be a 3-5% Originators Share, usually to the geologist or developer that found and put project together, that reduces the investor’s share.
Bottom line, individual investors in independent oil and gas investments make most of the money.
So, when you see the price of oil going up, realize that there is a group of investors making most of the money. This is why rising oil doesn’t always hurt the economy. In big oil producing states, many people share the wealth when these investors spend their funds in local shops/businesses. As those people receive funds, they too start spending more.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision.
Sphere: Related Content
Thursday, March 27, 2008
Saturday, March 22, 2008
Business owners should consider a direct investment in oil and gas to hedge against rising fuel costs while reducing taxes
Businesses owners should consider mitigating the risk of rising fuel costs by directly investing in oil and gas drilling investments.
Revenue from successful oil and gas wells will rise as the price of oil and gas rises. This allows the business owner to hedge against the rising fuel costs to the business. In addition, every dollar invested in oil or gas drilling ventures is fully deductible against active, ordinary, and passive income. See previous articles on the tax deduction, reduction of alternative minimum tax, and tax free income benefits of direct investment in oil and gas drilling ventures.
How much to invest?
The level of investment in these oil and gas drilling ventures should be proportional to the yearly cost of fuel to the company. There are risks with these types of investments, but those risks can be managed by carefully choosing the company and drilling project to invest in. Conduct due diligence on the oil/gas drilling project and offering company. A future article for this blog will cover ideas for conducting good due diligence.
Diversify to reduce risks.
Knowing not every well drilled will be successful, the business owner should spread nearly equal portions of available invested funds across several wells. Each business owner needs to consider many factors when deciding what this amount should be for each well. These could include the total amount of investment funds available, the company growth rate, the size of the yearly fuel cost as compared to other business expenses, the success rate of the oil company, and many other factors.
Reinvest to increase income over time.
An additional strategy is to reinvest a set percentage of the oil/gas revenues back into additional wells over time. This assures the business owner is always invested in wells, has continued to diversify across many wells, and is set to enjoy ongoing income from new wells when older wells start to dry out. If these investments are done right, the resulting revenue from these wells will offset the rising fuel cost of the business, while also reducing taxes. In fact, the reinvestment strategy could result in another profit stream for the business with revenue from enough wells while lowering taxes.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Revenue from successful oil and gas wells will rise as the price of oil and gas rises. This allows the business owner to hedge against the rising fuel costs to the business. In addition, every dollar invested in oil or gas drilling ventures is fully deductible against active, ordinary, and passive income. See previous articles on the tax deduction, reduction of alternative minimum tax, and tax free income benefits of direct investment in oil and gas drilling ventures.
How much to invest?
The level of investment in these oil and gas drilling ventures should be proportional to the yearly cost of fuel to the company. There are risks with these types of investments, but those risks can be managed by carefully choosing the company and drilling project to invest in. Conduct due diligence on the oil/gas drilling project and offering company. A future article for this blog will cover ideas for conducting good due diligence.
Diversify to reduce risks.
Knowing not every well drilled will be successful, the business owner should spread nearly equal portions of available invested funds across several wells. Each business owner needs to consider many factors when deciding what this amount should be for each well. These could include the total amount of investment funds available, the company growth rate, the size of the yearly fuel cost as compared to other business expenses, the success rate of the oil company, and many other factors.
Reinvest to increase income over time.
An additional strategy is to reinvest a set percentage of the oil/gas revenues back into additional wells over time. This assures the business owner is always invested in wells, has continued to diversify across many wells, and is set to enjoy ongoing income from new wells when older wells start to dry out. If these investments are done right, the resulting revenue from these wells will offset the rising fuel cost of the business, while also reducing taxes. In fact, the reinvestment strategy could result in another profit stream for the business with revenue from enough wells while lowering taxes.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Friday, March 21, 2008
Why do oil companies need investors if the oil and gas investments are expected to be so great?
Why should an oil company consider sharing their profits with investors?
If the oil or gas well is projected to be very profitable, why doesn’t the company fund the entire well itself to keep all of the profits? The main reasons are the financial leverage and risk management gained by adding funds from investors.
Consider an example of not using outside investors.
Consider an oil company with a total of $10 million to invest in oil and gas wells. Assume each oil or gas well costs $2.5 million to drill, complete, and put into production. If the company decided to fully fund each well without using additional investor funding, then they would only be able to fund a total of four wells ($10 million in funds divided by $2.5 million for each well).
Consider an example of using outside investors.
Now consider an alternative strategy where the company purchases a 20% ownership in many wells and offers the other 80% to investors. In this case, 20% of a $2.5 million well would require only a $500 thousand investment from the company per well. With $10 million in company funds available, the company could have 20% ownership in 20 wells instead of full ownership in only 4 wells. Their risks would be spread over five times as many wells by using outside investors.
Other reasons for including investors:
1. Potential lenders view a company that is diversified with many wells more favorably than a company where everything is riding on only a few wells.
2. The company has a better chance raising capital with a stock offering if it has many accredited investors as clients. This pool of accredited investors may also include influential business people with access to resources needed during the growth and development of the oil company.
Bottom line, good businesses manage risk through diversification.
The same is true of the most successful investors. Also, these companies and investors usually have a network of other successful and influential persons that all work together for mutual success.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
If the oil or gas well is projected to be very profitable, why doesn’t the company fund the entire well itself to keep all of the profits? The main reasons are the financial leverage and risk management gained by adding funds from investors.
Consider an example of not using outside investors.
Consider an oil company with a total of $10 million to invest in oil and gas wells. Assume each oil or gas well costs $2.5 million to drill, complete, and put into production. If the company decided to fully fund each well without using additional investor funding, then they would only be able to fund a total of four wells ($10 million in funds divided by $2.5 million for each well).
Consider an example of using outside investors.
Now consider an alternative strategy where the company purchases a 20% ownership in many wells and offers the other 80% to investors. In this case, 20% of a $2.5 million well would require only a $500 thousand investment from the company per well. With $10 million in company funds available, the company could have 20% ownership in 20 wells instead of full ownership in only 4 wells. Their risks would be spread over five times as many wells by using outside investors.
Other reasons for including investors:
1. Potential lenders view a company that is diversified with many wells more favorably than a company where everything is riding on only a few wells.
2. The company has a better chance raising capital with a stock offering if it has many accredited investors as clients. This pool of accredited investors may also include influential business people with access to resources needed during the growth and development of the oil company.
Bottom line, good businesses manage risk through diversification.
The same is true of the most successful investors. Also, these companies and investors usually have a network of other successful and influential persons that all work together for mutual success.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Thursday, March 13, 2008
You may be an accredited investor and not know it
You may be worth over $1 million outside of the value of your home and not really know it.
If so, then you are an accredited investor. There is no registration you need to do or form to fill out in order to be an accredited investor. Read the first posting to this blog for more info on what defines an accredited investor.
Consider all assets in your control.
When considering if you are accredited, you need to look at all of you and your spouse's assets. Click on the title of this blog for a link to wikipedia's definition of an asset. Make a list of all your assets with three columns to the right. In column one, put your best estimate of the asset's market value today. In the next column, put the amount of debt, if any, that you currently owe on that asset. In the last column, subtract the debt from the asset value to determine the net value of the asset.
When making your list of assets, don't overlook things that may not seem obvious. List the balances in all of the accounts in you and your spouse's control including IRA, 401k, pension, savings, CD, checking , stock or other broker, and other accounts. Also list all fine jewelry, furniture, collectibles, or other items of value. Think what you could get or every item you own of value. A trick for estimating the value of these items is to look for the same or similar item that has sold on eBay. Another way is to get valuables appraised by a professional. If you have a home or other business, talk with a business broker to see if they can estimate the value of your company. Find out what someone would pay to buy your successful business given you have a list of loyal clients and positive income from the business. Open your mind to think about everything you own as an asset that counts, other than the value of your home, toward being an accredited investor.
Add the value of these assets and you may be suprised.
Total the net values across all these assets. You may be surprised to find they total more than a million dollars. If so, welcome to a whole new world of investments for your consideration.
Don’t get greedy and start investing in every new opportunity presented.
Be sure to conduct good due diligence on each opportunity. Learn about many different opportunities before making a decision with the advice of professionals on what best fits your goals and needs. Take it slow as you learn and build on your successes while learning from your mistakes. I can just about guarantee you will make plenty of mistakes too. Just pick up and keep moving ahead. Don’t give up.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
If so, then you are an accredited investor. There is no registration you need to do or form to fill out in order to be an accredited investor. Read the first posting to this blog for more info on what defines an accredited investor.
Consider all assets in your control.
When considering if you are accredited, you need to look at all of you and your spouse's assets. Click on the title of this blog for a link to wikipedia's definition of an asset. Make a list of all your assets with three columns to the right. In column one, put your best estimate of the asset's market value today. In the next column, put the amount of debt, if any, that you currently owe on that asset. In the last column, subtract the debt from the asset value to determine the net value of the asset.
When making your list of assets, don't overlook things that may not seem obvious. List the balances in all of the accounts in you and your spouse's control including IRA, 401k, pension, savings, CD, checking , stock or other broker, and other accounts. Also list all fine jewelry, furniture, collectibles, or other items of value. Think what you could get or every item you own of value. A trick for estimating the value of these items is to look for the same or similar item that has sold on eBay. Another way is to get valuables appraised by a professional. If you have a home or other business, talk with a business broker to see if they can estimate the value of your company. Find out what someone would pay to buy your successful business given you have a list of loyal clients and positive income from the business. Open your mind to think about everything you own as an asset that counts, other than the value of your home, toward being an accredited investor.
Add the value of these assets and you may be suprised.
Total the net values across all these assets. You may be surprised to find they total more than a million dollars. If so, welcome to a whole new world of investments for your consideration.
Don’t get greedy and start investing in every new opportunity presented.
Be sure to conduct good due diligence on each opportunity. Learn about many different opportunities before making a decision with the advice of professionals on what best fits your goals and needs. Take it slow as you learn and build on your successes while learning from your mistakes. I can just about guarantee you will make plenty of mistakes too. Just pick up and keep moving ahead. Don’t give up.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Saturday, March 8, 2008
Eliminate the tax burden for 1031 exchanged real estate by participating in an oil and gas drilling investment
Use oil/gas drilling ventures to reduce or eliminate 1031 exchanged asset's eventual capital gains taxes.
Real estate investors who have deferred capital gains taxes on 1031 exchanged properties may be able to eliminate or drastically reduce capital gains taxes by participating in an oil and gas investment. By selling outside of using a 1031 exchange, the owner can reinvest the capital gains into an oil and gas investment since the full investment is deductible against active and passive income. Lets look at this in more detail.
First let’s provide a quick overview of what a 1031 exchange is.
This is an investment tool that allows usually real estate investors to sell income property without paying capital gains if those funds are invested in a equal or higher cost “like” type investment, usually another income property. However, the tax has only been deferred, not eliminated. Eventually, there will be a time when the sale of the final exchanged property will require payment of capital gains taxes based on the basis value of the original first exchanged property. There is potential for very significant capital gains in these properties resulting in equally significant taxes. There are ways to reduce or eliminate these taxes, but those methods usually require giving up some or all control of the asset or funds.
Consider an example.
As an example, assume an investor has $100,000 in capital gains in an income property and wishes to purchase a more significant income property. If the investor chooses to sell the first property without using a 1031 exchange, then a 15% capital gains tax is due for $15,000, leaving only $85,000 of funds for investment in the other property. If a 1031 exchange is used, then the full $100,000 of capital gains could be invested in the other property. This is a significant advantage while building wealth, but not an elimination of the eventual taxes due.
Exchanging real estate as "like type" investment into a domestic oil/gas drilling venture.
If an oil or gas well project is set up with investors having direct ownership interest, then the offering company may be able to accept 1031 exchange into the associated partnership shares. Oil and gas wells are considered “like” type investments allowing exchange of income properties into participation in the well. One thing to be aware of with any 1031 exchange is there are usually third party fees that can take several percentages of the funds in fees for facilitating the exchange. Therefore, even though you can do a 1031 exchange of real estate into a oil and gas investment, the fees and deferred tax issues may make it a better choice to sell the real estate outside of a 1031 exchange with the proceeds going into an oil and gas investment to get the associated tax benefits mentioned above.
It may make more sense to sell outside of 1031 into a domestic oil/gas drilling venture.
An example will illustrate the benefits of moving previously 1031 exchanged properties into an oil or gas well outside of using a 1031 exchange. For this example, 90% of the invested funds for each participation share in the partnership goes toward intangible drilling costs while the remaining 10% goes toward tangible costs. If the investor sells a property that has $100,000 in capital gains and invests the funds in an oil or gas well, then 90% of the $100,000, or $90,000 is removed from capital gains tax exposure the year of the sale. Only the remaining $10,000 is taxable at a 15% capital gains tax rate for a total tax due of $1,500 for the $100,000 in capital gains. However, the remaining 10% of each share cost can be deducted as tangible costs over seven years. Therefore the $1,500 in taxes is recouped over these seven years.
Bottom line...
As you can see, oil and gas well participation offers real estate investors with large capital gains to remove the associated tax burden for 1031 exchanged properties with capital gains.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Real estate investors who have deferred capital gains taxes on 1031 exchanged properties may be able to eliminate or drastically reduce capital gains taxes by participating in an oil and gas investment. By selling outside of using a 1031 exchange, the owner can reinvest the capital gains into an oil and gas investment since the full investment is deductible against active and passive income. Lets look at this in more detail.
First let’s provide a quick overview of what a 1031 exchange is.
This is an investment tool that allows usually real estate investors to sell income property without paying capital gains if those funds are invested in a equal or higher cost “like” type investment, usually another income property. However, the tax has only been deferred, not eliminated. Eventually, there will be a time when the sale of the final exchanged property will require payment of capital gains taxes based on the basis value of the original first exchanged property. There is potential for very significant capital gains in these properties resulting in equally significant taxes. There are ways to reduce or eliminate these taxes, but those methods usually require giving up some or all control of the asset or funds.
Consider an example.
As an example, assume an investor has $100,000 in capital gains in an income property and wishes to purchase a more significant income property. If the investor chooses to sell the first property without using a 1031 exchange, then a 15% capital gains tax is due for $15,000, leaving only $85,000 of funds for investment in the other property. If a 1031 exchange is used, then the full $100,000 of capital gains could be invested in the other property. This is a significant advantage while building wealth, but not an elimination of the eventual taxes due.
Exchanging real estate as "like type" investment into a domestic oil/gas drilling venture.
If an oil or gas well project is set up with investors having direct ownership interest, then the offering company may be able to accept 1031 exchange into the associated partnership shares. Oil and gas wells are considered “like” type investments allowing exchange of income properties into participation in the well. One thing to be aware of with any 1031 exchange is there are usually third party fees that can take several percentages of the funds in fees for facilitating the exchange. Therefore, even though you can do a 1031 exchange of real estate into a oil and gas investment, the fees and deferred tax issues may make it a better choice to sell the real estate outside of a 1031 exchange with the proceeds going into an oil and gas investment to get the associated tax benefits mentioned above.
It may make more sense to sell outside of 1031 into a domestic oil/gas drilling venture.
An example will illustrate the benefits of moving previously 1031 exchanged properties into an oil or gas well outside of using a 1031 exchange. For this example, 90% of the invested funds for each participation share in the partnership goes toward intangible drilling costs while the remaining 10% goes toward tangible costs. If the investor sells a property that has $100,000 in capital gains and invests the funds in an oil or gas well, then 90% of the $100,000, or $90,000 is removed from capital gains tax exposure the year of the sale. Only the remaining $10,000 is taxable at a 15% capital gains tax rate for a total tax due of $1,500 for the $100,000 in capital gains. However, the remaining 10% of each share cost can be deducted as tangible costs over seven years. Therefore the $1,500 in taxes is recouped over these seven years.
Bottom line...
As you can see, oil and gas well participation offers real estate investors with large capital gains to remove the associated tax burden for 1031 exchanged properties with capital gains.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Full tax deduction against both active and passive income for all invested funds in oil and gas drilling ventures
All funds invested in a properly structured domestic oil/gas drilling venture are fully tax deductible.
Funds invested in a oil and gas drilling venture go toward paying two types of tax deductible costs to drill and put a well online: intangible and tangible costs. Intangible Drilling Costs (IDCs) can be fully deducted the first year a well is drilled and is typically 65 - 80% of the funds invested to drill and put a well in production. Tangible costs can be deducted over seven years. Deducting both intangible and tangible costs against both ative and passive income allows the investor to significantly save on income taxes by deducting the full amount invested in a oil and gas drilling venture.
What is included in Intangible Drilling Costs (IDC)?
IDC includes those items that do not stay with the well once it is put into production. These costs include fees paid to the driller, operator, sales agents, lawyers, producers, accountant, and others. It also includes other non-depreiable costs such as fuel, mud (a thick liquid used to lubricate the drill bit and to bring drilled particles to the surface), etc.
What is included in Tangible Drilling Costs (TDC)?
TDC includes those items that continue with the well when it is in production such as the cost of a pump for the well, pipelines to collect the oil and gas, storage tanks to store the oil and gas, the road up to the well and associated asphalt covering if used, etc.
Understanding these deductions from an example.
Let’s look at an example to see how these tax advantages come into play. Assume you invest $100,000 into the partnership where 80% of your investment goes toward intangible drilling costs. Once in production, the well pays you a net income of $10,000 per month. Also, your combined State and Federal tax rate is 50%. First we will look at what portion of your total investment will be deductible. Doing the math, since 80% of your investment went to pay intangible drilling costs, you can deduct $80,000 of your investment the first year against both active and passive income. That means you have saved $40,000 in taxes which would have been paid on $80,000 income at the 50% tax bracket. The remaining $20,000 of your invested funds go toward tangible costs and can be fully deducted over seven years against both active and passive income. The end result is the full $100,000 invested in the well is completely deducted against all income types.
Again, only investment in domestic oil/gas drilling ventures provide full writeoff of all invested funds against all income types.
No other investment vehicle besides an oil and gas drilling venture gives you such large deductions in the first year with the remainder over the seven years to where all of the invested funds are eventually deducted.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Funds invested in a oil and gas drilling venture go toward paying two types of tax deductible costs to drill and put a well online: intangible and tangible costs. Intangible Drilling Costs (IDCs) can be fully deducted the first year a well is drilled and is typically 65 - 80% of the funds invested to drill and put a well in production. Tangible costs can be deducted over seven years. Deducting both intangible and tangible costs against both ative and passive income allows the investor to significantly save on income taxes by deducting the full amount invested in a oil and gas drilling venture.
What is included in Intangible Drilling Costs (IDC)?
IDC includes those items that do not stay with the well once it is put into production. These costs include fees paid to the driller, operator, sales agents, lawyers, producers, accountant, and others. It also includes other non-depreiable costs such as fuel, mud (a thick liquid used to lubricate the drill bit and to bring drilled particles to the surface), etc.
What is included in Tangible Drilling Costs (TDC)?
TDC includes those items that continue with the well when it is in production such as the cost of a pump for the well, pipelines to collect the oil and gas, storage tanks to store the oil and gas, the road up to the well and associated asphalt covering if used, etc.
Understanding these deductions from an example.
Let’s look at an example to see how these tax advantages come into play. Assume you invest $100,000 into the partnership where 80% of your investment goes toward intangible drilling costs. Once in production, the well pays you a net income of $10,000 per month. Also, your combined State and Federal tax rate is 50%. First we will look at what portion of your total investment will be deductible. Doing the math, since 80% of your investment went to pay intangible drilling costs, you can deduct $80,000 of your investment the first year against both active and passive income. That means you have saved $40,000 in taxes which would have been paid on $80,000 income at the 50% tax bracket. The remaining $20,000 of your invested funds go toward tangible costs and can be fully deducted over seven years against both active and passive income. The end result is the full $100,000 invested in the well is completely deducted against all income types.
Again, only investment in domestic oil/gas drilling ventures provide full writeoff of all invested funds against all income types.
No other investment vehicle besides an oil and gas drilling venture gives you such large deductions in the first year with the remainder over the seven years to where all of the invested funds are eventually deducted.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Friday, March 7, 2008
Reducing your Alternative Minimum Tax (AMT) by investment in an oil and gas drilling venture
You can reduce up to 40% of your Alternative Minimum Tax (AMT) income by investing in a domestic Oil and Gas (O&G) drilling venture and the resulting income generated from the wells will not put you in an AMT situation. These are two unique benefits to independent oil and gas producer ventures/investment opportunities that no other investments give if you are in an AMT situation.
As stated, up to 40% of your alternative minimum tax income can be reduced a dollar for every invested dollar in an Oil or gas drilling venture. As an example, assume an investor has $300,000 in alternative minimum tax income. This investor can use up to 40% of this $300,000, or $120,000, in intangible drilling costs deductions. Intangible Drilling Costs (IDC) deductions are excluded as tax preference items for small producers and associated investors. Also, by electing to write off IDCs over five years you can increase the limit of your deductions without affecting AMT.
The bottom line is oil and gas well participation is a vehicle to reduce up to 40% of your alternative minimum tax income while the resulting yearly income will not put you in a AMT situation. For more information, you can read Page 6 of IRS Instructions for Form 6251 / Line 25 (2007 version). You can click on the title for the 2007 instructions that explain line 25 at the time of this posting.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision.
Tax free income tax advantage of oil and gas investments due to a depletion allowance
Investing in domestic oil and natural gas drilling ventures generates a high percentage of tax free income due to the depletion allowance.
Generally the first 15 to 23% or so of income generated each year from an oil or gas well is tax free due to a depletion allowance. You can think of this in a similar way to depreciation for buildings. In that case the IRS assumes a building will have a useful life of say 27 years over which time it can be depreciated to a value of zero dollars. Each year you write-off a portion of the building's value over this period to reduce your income and the associated taxes.
How does the depletion allowance work for oil and gas investments?
For oil and gas, the IRS recognizes these wells only have a finite amount of oil or gas until they are no longer be productive. Therefore, the IRS allows investors to have a depletion allowance yearly against the generated income over generally five to seven years expected life of the well. You can click on the title of this post to go to IRS publication #535 which gives more specifics on how to calculate the mineral (oil and gas included) depletion allowance. However, most oil and gas drilling ventures/investments will generate a K-1 form yearly letting you know what they calculated as your depletion allowance for tax purposes. You don't need to calculate this manually on your own unless you wish to double check what they report on the K-1.
Bottom line...
No other investment in the U.S. gives you the potential for significant yearly tax free income from the investment than an oil or gas drilling investment. Sure, government securities can provide tax free income, but not the same potential returns that can be gained from a good productive oil or gas well.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Generally the first 15 to 23% or so of income generated each year from an oil or gas well is tax free due to a depletion allowance. You can think of this in a similar way to depreciation for buildings. In that case the IRS assumes a building will have a useful life of say 27 years over which time it can be depreciated to a value of zero dollars. Each year you write-off a portion of the building's value over this period to reduce your income and the associated taxes.
How does the depletion allowance work for oil and gas investments?
For oil and gas, the IRS recognizes these wells only have a finite amount of oil or gas until they are no longer be productive. Therefore, the IRS allows investors to have a depletion allowance yearly against the generated income over generally five to seven years expected life of the well. You can click on the title of this post to go to IRS publication #535 which gives more specifics on how to calculate the mineral (oil and gas included) depletion allowance. However, most oil and gas drilling ventures/investments will generate a K-1 form yearly letting you know what they calculated as your depletion allowance for tax purposes. You don't need to calculate this manually on your own unless you wish to double check what they report on the K-1.
Bottom line...
No other investment in the U.S. gives you the potential for significant yearly tax free income from the investment than an oil or gas drilling investment. Sure, government securities can provide tax free income, but not the same potential returns that can be gained from a good productive oil or gas well.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Wednesday, March 5, 2008
Understanding accredited investors
What is an accredited investor?
The Securities Exchange Commission (S.E.C.) established the Securities act of 1933 requiring certain investments only be sold to accredited investors. This act now defines accredited individual investors as those with a net worth of at least $1M or an annual income of at least $200,000 for the past two years with an expectation of making the same during the current year. Click on this article's title for more specifics on the different criteria for determining an accredited investor.
Now, lets understand why the S.E.C. created this act.
During the years before the great depression, there were many scams and promises of getting rich quickly in a big way by investing in different ventures. Many ordinary people bought these investments without really understanding what was involved and ended up losing everything during the depression. In order to mitigate such a large number of people putting all of their key savings into these types of investments, the S.E.C. established the Securities act of 1933 requiring certain investments only be available to investors who could afford to lose risk capital. The thought was that these people would not likely put all of their funds into a single investment, but would have risk capital to invest. These higher wealth investors are also expected to have more understanding of how to evaluate what they are investing in to screen out the scams from legitimate investments. For this reason, most private placements are only available to accredited investors.
What is a private placement or private placement memorandum (PPM)?
An example of a private placement would be a small corporation requiring funds to expand and grow. They may conduct a private placement offering of stock in the company at an agreed price per share to accredited investors. The specifics of the placement are provided in a private placement memorandum (PPM). These accredited investors are able to buy stock usually at a low price while the company receives the infusion of capital to use for expansion, in this case without taking on the burden of debt. The company is happy and the investors are usually happy when, at a future time, the company offers to sell some or all of their shares in an Initial Public Offering (IPO) to the open stock market - hopefully at a much higher price per share. That is why you sometimes hear it is harder to make your first million than your next million. Once you have a million net worth to become an accredited investor, then you have access to investments with potential high return (and high risk) to help quickly reach your next million.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
The Securities Exchange Commission (S.E.C.) established the Securities act of 1933 requiring certain investments only be sold to accredited investors. This act now defines accredited individual investors as those with a net worth of at least $1M or an annual income of at least $200,000 for the past two years with an expectation of making the same during the current year. Click on this article's title for more specifics on the different criteria for determining an accredited investor.
Now, lets understand why the S.E.C. created this act.
During the years before the great depression, there were many scams and promises of getting rich quickly in a big way by investing in different ventures. Many ordinary people bought these investments without really understanding what was involved and ended up losing everything during the depression. In order to mitigate such a large number of people putting all of their key savings into these types of investments, the S.E.C. established the Securities act of 1933 requiring certain investments only be available to investors who could afford to lose risk capital. The thought was that these people would not likely put all of their funds into a single investment, but would have risk capital to invest. These higher wealth investors are also expected to have more understanding of how to evaluate what they are investing in to screen out the scams from legitimate investments. For this reason, most private placements are only available to accredited investors.
What is a private placement or private placement memorandum (PPM)?
An example of a private placement would be a small corporation requiring funds to expand and grow. They may conduct a private placement offering of stock in the company at an agreed price per share to accredited investors. The specifics of the placement are provided in a private placement memorandum (PPM). These accredited investors are able to buy stock usually at a low price while the company receives the infusion of capital to use for expansion, in this case without taking on the burden of debt. The company is happy and the investors are usually happy when, at a future time, the company offers to sell some or all of their shares in an Initial Public Offering (IPO) to the open stock market - hopefully at a much higher price per share. That is why you sometimes hear it is harder to make your first million than your next million. Once you have a million net worth to become an accredited investor, then you have access to investments with potential high return (and high risk) to help quickly reach your next million.
- - - - - - - - - -
Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for information on what projects we are invested in.
This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Past articles can easily be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content
Subscribe to:
Posts (Atom)