INVESTMENT MYTHS

REALITY – By definition, any investment is risky, but a direct investment in an oil or natural gas well is different. A typical investment in real estate or stocks is purchased with money that has already been taxed, while a direct oil or gas well investment provides you with tax deductions against ordinary income for a variety of production costs. Typically, you are able to deduct 60 to 85% of the investment in the year the well was drilled, and the rest over the next five years. Essentially, this puts both your investment and government money to work for you.

REALITY – Major oil companies that operate worldwide have major expenses, and subsequently, have to make even greater profits in order to affect the value of stock shares. Investment in the drilling and production of one project provides more opportunity for your investment to return faster and larger profits—which won’t in turn be divided among millions of other investors.

REALITY – The practice of “wildcatting,” or exploratory drilling in areas that do not have proven track records for production, has been met with very limited success. “Boom or bust” legends usually originated from this practice. Developmental drilling near proven, productive wells has a much higher rate of success, especially when emerging technologies for locating and extracting oil and natural gas are employed. During your research, it would be wise to ask about the production records of wells nearby the proposed investment project.

REALITY – Bad-faith schemes to separate poorly informed investors from their money exist in every industry. Due diligence is necessary for any opportunity, especially when the word “guaranteed” is used. No legitimate investment opportunity guarantees profit. Discuss any opportunity with your financial representative to discuss your objections and risk tolerances, and examine a direct investment in an oil well together, like you would any other financial decision. If you can, visit the drilling site and speak with the technical staff involved with the project. To find out which questions are best to ask during your research, contact a Smart Oil and Gas representative at info@smartoilandgas.org.

REALITY – Some investment structures may carry certain restrictions to sale, and you should ask about that up front, but typically shares of wells are valued and can be transferred according to their cash flows, similar to a storefront business. Wells with longer production histories and cash flow records are easier to sell, and industry attention to the region of your investment can create opportunities to divest.

Quarterly or annual cash flow evaluations can help you to decide how to maximize your interest over the course of your investment, but if your investment is producing steady income, you may want to hold onto it for its long-term value.

REALITY – Oil and gas are limited resources, but that does not mean that the well won’t be productive for a long time. Oil wells produce the most early on, because of pressure that has built up over thousands of years, but it could take years or even decades to deplete. Artificial pressure can even be used to continue (or increase) the production of a well for decades more. And new technologies are consistently being tested and applied to maximize the efficiency and production of oil and natural gas wells. Productive oil and gas investments are often passed down from generation to generation.

REALITY – Direct investments in an oil well carry costs such as lease and operating expenses, but turnkey investment agreements protect investors from the physical liability. Operators and drilling companies carry hazard insurance in order to cover themselves and their investors. In addition, professional crews are trained heavily in safety protocols to minimize risks while operating.