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Oil and Gas Investments

Over the past several months, we have seen a significant spike in oil and gas prices. We see it on the news, hear it from our friends, and certainly feel it in our wallets. From my perspective, there are two things we can do.

1. You can find alternative ways to travel.
2. You find ways to make money off of the global reliance of fuel products

Thus, I decided to dedicate this eNewsletter to oil and gas investments. I want to disclose that this eNewsletter is by no means stating that we should be completely reliant on oil/gas. There are certainly other alternatives; however, oil and gas are a great alternative investment towards battling inflation. Historically, this alternative asset has shown some volatility, but has always been a great diversification play for an investment portfolio.

Types of Oil and Gas Investments
Oil and gas investment options are no longer limited to a select few individuals. In the last 2-3 decades, the oil and gas market has yielded new investment options to give investors the ability to participate in this alternative asset based on their risk tolerance, necessity for liquidity, income needs, and tax situation.

Here is a quick review of such options:

Mutual Funds:

Mutual funds allow investors to participate in a diversified portfolio of different oil and gas companies. This option is considered the least risky of all the options. However, the tax benefits are not available for this option.

Exchange Traded Funds (ETFs):

ETFs are traded on the exchange, which endeavors to follow the price of oil and gas. Additionally, this product attempts to use a leveraged exotic structure to multiply the effect of the price changes in oil or gas. Again, there is no tax advantage for this option.


Investors can invest in stocks of major oil companies. Companies like Exxon (XOM) and Chevron (CVX) offers you the ability to participate in oil and gas with a liquidity feature on the secondary market. Unfortunately, there are no tax advantages for this option.

Direct Participation:

Typically for accredited investors (Investors with 1mm net worth, or making 250k/year). Buying direct means buying interest in established wells, which has been successfully drilled. Investors have minimized their drilling risks with the benefits of a stream of income related to the well. The tax benefits enjoyed by intangible drilling costs (IDCs) are usually not available for this investment, as the investors are not taking any of the risk of drilling.

Working Interest:

One risky option is buying into an ownership interest in an oil and gas well. There are significant tax benefits in this investment option, which are not available in any other investment classes. Unfortunately, the payback may take 2 to 4 years before it can be able to yield any return on investment. Note: must be accredited investor.

Royalty Interest:

Royalties consist of income received by those who own the mineral rights where an oil or gas well has been drilled. Unlike other countries, in the USA mineral rights are privately held and individuals or groups enjoy the benefits of ownership. The royalty income comes “off the top” of the gross revenue generated from one or more wells. Unlike Working Interest Owners, mineral right owners assume no liability of any kind related to the leases or wells. However mineral right owners are not eligible for any of the tax benefits enjoyed by Working Interest Owners.

For those who want to know if oil and gas investments is appropriate for you, please email/call me at [email protected] / 503-747-6534.

Oil and gas investments are speculative, involve a high degree of risk and are illiquid. Neither the material contained nor the discussion at this presentation constitutes an offer to sell nor a solicitation of an offer to buy any security. Such offers may only be made by means of an offering memorandum.

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