Producing oil and gas Investments are for those accredited investors seeking passive investments, income and, above all, diversification. Investors can potentially receive monthly Royalty checks for decades.
Some Benefits of Oil & Gas Investing:
POTENTIAL FOR INCREASED MONTHLY CASH FLOW:
oil and gas programs may increase cash flow and total return to a traditional investment portfolio.
MANAGEMENT FREE: Professional Management.
Professional operators with a proven track record are very important. A good Oil & Gas investment depends on solid management, good engineering, and a thorough understanding of the production life of the wells. An experienced operator will have the organization, professionals, and systems in place to properly analyze and operate the investment.
INVESTMENT PORTOLIO HEDGE: oil and gas ownership provides a hedge against the impact of sustained high or rising energy prices on other asset classes.
oil and gas have a low or negative correlation to other asset classes (equities, bonds, Real Estate, etc.) creating a hedge in a diversified portfolio.
REDUCED EXPOSURE TO REAL ESTATE: oil and gas can help reduce many 1031 exchange investors exposure to real estate.
Many investors are over allocated in real estate. Investing in oil and gas can help reduce exposure to real estate by investing in a global commodity that is not solely dependent on the U.S. real estate market.
FLEXIBLE LIQUIDITY OPTIONS: Investor controls exit strategy.
An investor can sell directly to another investor or liquidate the investment in the secondary market. Each year, hundreds of millions of dollars of oil and gas interests are bought and sold through online auctions, third party divestment companies, and private sales.
INVESTMENT SIZE FLEXIBILITY: Match your investment.
Oil & Gas production can be acquired on a fractional basis, typically with a small minimum investment. Large producing fields can be sold to hundreds of investors; each individual investor owns a fractional interest in all of the producing wells.
REDUCED CONCENTRATION RISK: Diversification.
oil and gas assets are typically offered nationwide, and often consist of ownership in hundreds and often thousands of producing wells, on hundreds or thousands of acres of land in multiple oil and gas regions in the United States.
Risk of oil and gas Investing:
Prices of oil and gas are highly volatile
The value of Oil & Gas investments are based on the potential production and the price of Oil & Gas as a commodity. The income and value of the Oil & Gas interest will fluctuate depending on the then-current domestic and foreign reserves, oil and gas prices, and demand for oil and gas production.
Reserve estimates are not an exact science
There are many uncertainties inherent in estimating quantities and values of reserves. This makes the task of projecting future rates of production or future contemplated development difficult.
Difficult to Leverage
Unlike real estate, Oil & Gas is very difficult to leverage. 1031 exchange investors needing to replace debt in their 1031 exchange will have a difficult time acquiring only Oil & Gas interests.
Alternative Energy Sources
Oil & Gas investments will likely decrease if new areas of exploration are discovered, alternative energy sources are developed or supply begins to exceed demand.
Production expenses
Production expenses will most likely not directly impact the proceeds received by Royalty owners, but they do influence the operation of the well. For example, a possible result of a dramatic increase in production expenses is a reduction or cessation of well production, which could have an adverse affect on an investors yield.
While there are generally no drilling risks, Oil & Gas wells do require maintenance, and an Owner of a Working Interest will pay a pro rata share of the expenses associated with maintaining the wells.
Tax Treatment of oil and gas Production working interest and Royalty Interest
Tax Treatment: Investors in Oil & Gas production can deduct against income the greater of "cost" depletion or "percentage" depletion. 1031 exchange Investors often transfer a low basis into Oil & Gas production and will typically use "percentage" depletion. "Percentage" depletion is calculated as a percentage of the revenue generated by the wells. The cost or adjusted basis has no bearing on the amount of "percentage" depletion allowed. As a result, depletion deductions can exceed the cost or adjusted basis. Unlike depreciation of real estate, if the investor sells Oil & Gas production, there is no recapture of depletion taken.
Following are some of the things we examine when determining an offering to present to our clients:
High Well Count
Our offerings are typically comprised of hundreds or thousands of producing wells. This allows for risk diversification and reduces
the impact of depletion that can hurt the performance of smaller properties with low well count.
Long Reserve Life
All Royalty Interest offered are producing properties with several decades of remaining reserves. Detailed engineering on each property helps to ensure a long-term stream of royalty income to investors.
Undeveloped Acreage
In addition to acquiring Royalty Interest into a large number of currently producing wells, Royalties on surrounding undeveloped acres are also acquired. This allows our investors to benefit from the capital expenditures of the owners and operators of the Working Interest, who drill new wells, develop additional reserves and increase production on the property.
Broad Investment Appeal
Properties deliver long-term investment performance to a broad range of investors. The potential for high yield and diversification allow this asset class to make sense for Institutions (Pension Funds, Hedge Funds, Endowments), Real Estate investors including Qualified 1031-Exchange Replacement Property, and High Net Worth Individuals seeking income or energy assets in their portfolios.
Call 1-888-808-ALTA (2582) to schedule an appointment to see if Royalties are the right investment for you.
Disclaimer
1. This document and the materials contained in it are neither an offer to sell nor a solicitation of an offer to buy any security in any state or jurisdiction.
2. Past performance is not a guarantee of future performance or returns.
