If you’re considering an investment in oil and gas, it’s important to weigh all of your options and determine which type of investment makes the most sense for you.  While most people choose traditional methods to invest in oil and gas, direct participation can be a good alternative for this industry. Understanding more about this method of investing can help you determine if it’s the best choice to meet your needs.

How It Differs from Traditional Investing

In typical investing opportunities, individuals purchase an interest in the company, allowing them to benefit from the success of the business. However, when it comes to direct participation oil and gas investments, you are in essence purchasing part of the well itself. There are two ways in which you can become involved in this type of investment: as a limited partner or a general partner. Before you get involved, you need to determine which scenario best suits your needs and can provide the most lucrative outcome.

Limited vs. General Partnerships

Before you invest in oil and gas, you need to know whether you wish to enter a direct participation agreement under a limited or general partnership. In general terms, limited partnerships allow all financial events to go through the investor, including income, tax credits, gains, losses and deductions. This is because these individuals are putting their own money into the function of the well and stand to gain or lose just as much as anyone else involved. General partners enjoy the same benefits and risks, with the added ability to buy and sell the property, enter legally binding contracts and receive additional compensation for managing the partnership, as well as other benefits.

Improved Tax Advantages

One of the biggest reasons individuals choose this type of investment in oil and gas is the tax advantages it can provide. In addition to owning an actual part of the production of the particular well, investors become responsible for some of the costs associated with the well’s operations. This provides tax advantages as the some of the costs can be written off on taxes, reducing tax liabilities as a whole. These deductions can also offset tax liabilities that result from other sources of income, making oil and gas an even more lucrative investment.

Direct participation oil and gas investments can be a more lucrative way to make money on oil and gas wells. Instead of buying stake in the company, you are purchasing an actual piece of the well and contributing to the production of the oil and gas. This creates different advantages than more traditional methods of oil and gas investments, giving you the opportunity to truly take advantage of everything oil and gas wells can offer.

If you’re interested in investing in oil and gas, contact us. We take great pride in building a portfolio that gets results.