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.

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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 with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: Past articles can easily be found at 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

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