HOW INVESTING IN OIL COULD SAVE YOU THOUSANDS ON YOUR TAXES

HOW INVESTING IN OIL COULD SAVE YOU THOUSANDS ON YOUR TAXES

In an effort to stimulate domestic oil and natural gas production financed through private equity, Congress provided tax incentives in the 1990 Tax Act to significantly enhance the economics of investing in the oil and natural gas industry. This incentives have made investment in the oil and gas industry one of the most tax-advantaged investments available.

The new Tax Code specifically states that a working interest in an oil and gas well is not a “passive” activity. Therefore, deductions can be offset against any income. This includes active stock trades, salaries, and business income. (section 469 (c)(3) of the Tax Code)

The concepts of “Passive” and “Active” income was first introduced into the tax code in the 1986 Tax Reform Act. The Act prohibits the offsetting of losses from Passive activities against income from Active businesses. What this implies is that, a loss or expense in an investment in a mutual fund(passive investment – since he doesn’t actively manage the investment portfolio of the fund) by a doctor cannot be offset by earnings from his medical practice but should the investment be a working interest in the oil and gas industry(another passive investment – since he also doesn’t manage the business), he would be able to deduct such loss or expense from the tax returns of his medical practice.

The lure of petrol dollar with the ever high demand for petrol and petroleum-based commodities backed by tax incentives, offers a great investment opportunity for investors. The investment options available in the oil and natural gas industry for the likes of Dr. James Rodriguez from Iowa or Mrs. Camellia Sullivan of Georgetown, New Jersey are quite varied with each offering marginal returns on investment and some, tax breaks on their day jobs. It is worthy to note that not all investments in the oil and gas industry attracts such tax breaks and it is our intention to clarify those that offer such incentives and those that do not.

Investment in the oil and gas industry for individuals and small companies take different forms and risk/reward components. Investment portfolio in the oil and gas industry for small companies and individuals includes; mutual funds or ETFs, partnerships, royalty interest and working interest.

Mutual Funds or ETFs: This investment method poses the least amount of risk for the investor but it does not offer any of the tax benefits. Investors will pay tax on all dividends and capital gains, just as they would with other funds.

Partnerships: Partnerships in oil and gas investments can take several forms with limited partnership being the most common, this sort of partnership limits the liability of the entire producing project to the amount of the partner’s investment. They are sold as securities and must be registered with the Securities and Exchange Commission (SEC). Tax incentives are available on a pass-through basis. The partner will receive a Form K-1 each year detailing his or her share of the revenue and expenses. This sort of investment is direct and provides a stable base for investors looking at a minimal risk portfolio.

Royalty Interest: Refers to ownership of a portion of the resource or revenue that is produced. A company or person that owns a royalty interest does not bear any of the costs of the operations needed to produce the resource, yet the person or company still owns a portion of resource or revenue produced. Holders of royalty interest are not eligible for tax benefits enjoyed by holders of partnership and working interests.

 

Working Interests: This is the investment with the most risk and most involved way to participate in the oil and gas Industry. This sort of investment allow investors own a percentage ownership of the drilling operation, functioning as a form of lease, providing the investor a right to take part in drilling activities and a right to the resources produced from that activity. Along with deriving an income from the production of the resource, the investors are also responsible for a percentage of the expenses related to its acquisition. Investors with working interests are often eligible for certain tax deductions based on the operating costs associated with the business. This can include business expenses of a tangible or intangible nature, such as equipment costs or utility payments.

The oil and natural gas industry is quite volatile. When you become involved in these ventures, have a healthy respect for the potential risks and be honest with yourself about your own risk tolerance and investment horizons. Ask cogent questions such as; Are you a natural entrepreneur? Can you afford to lose substantially on any one venture? Is it worth the risk if there’s a chance at great reward?

You may be a candidate for limited partnerships, futures, working interest or shares in small exploration companies. If they strike it rich, so will you. But you could lose it all. Pay heed to liquidity. If there is any chance at all you will need to pull your money out in a hurry, the limited partnership route is not for you. These investments can be lucrative, but they work best for those who are able to lock up their funds for years at a stretch

Statoil Economist Predicts $60 Oil “Relatively Soon: Will You be Ready?

Statoil Economist Predicts $60 Oil “Relatively Soon: Will You be Ready?

While speaking with Bloomberg, Statoil Chief Economist Eirik Waerness stated that oil prices would once again jump over the $60 a barrel price relatively soon. Waerness was speaking about the long-term outlook for oil on a timeline that extended to 2050.

 

What is Relatively Soon?

 

Waerness was not predicting oil would cross the $60 a barrel threshold overnight or even in the next week or month. But, he is confident in his position that oil prices will rise sooner rather than later. This prediction is based on the fact that several of the main economic factors depressing oil prices are not sustainable.

 

OPEC has been working to trim the global crude oil glut since last November when it output by 1.2 million barrels per day. However, this huge achievement was not as effective as hoped.  The United States, Libya, and Nigeria each amped up production in the wake of the OPEC cuts.

 

Waerness noted that the current levels of production by these nations, especially in the American shale industry were not sustainable much longer. The oil glut will slowly dissipate over time, and oil prices will see a steady recovery. The key is for investors to exercise patience and to put themselves into the position to profit from this long-term trend towards higher oil prices.

 

Historic Lows Makes Now a Good Time to Buy

 

While oil today is well above the historically low prices of January 2016, it is still priced lower than it is historically has been during periods of economic growth. With economists such as Waerness predicting a brighter future for crude prices, there has rarely been a better time for investors to see strong returns on investment in the oil industry over the next several years. Once oil does hit $60 a barrel, investors that entered the market while the price is still below $50 will ready to rake in incredible profits.

 

Of course, finding the right investment opportunity requires solid investigation and research. Last year new oil projects and oil field discoveries hit record lows. This is another sign that the global oil glut will soon come to an end. It is also a signal to investors that now is the time to find existing projects that are producing, or that will be online in the next year or two.

 

Factors That Make American Oil an Attractive Long-Term Investment

 

While the full recovery of oil prices will be a boon to the entire industry, investments in American oil production are particularly attractive for long-term growth and profits.

 

The United States is in the middle of an energy renaissance. New technologies and techniques are reopening old oil fields. State and federal governments are more supportive of oil production than ever before.

 

Many oil investments even quality for unique tax treatment. As the political situation continues to destabilize throughout the Middle East, finding safe places to invest in the oil industry becomes more difficult. Over the past five years, the U.S. oil industry has shown a surprising resilience. Even economists like Eirik Waerness were initially surprised by the consistency of the production output by U.S. oil fields.

 

The time is coming when oil will not only cross the $50 a barrel line, but will continue to climb until it crosses the $60 a barrel price as well. Are you ready to take advantage of this profitable long-term trend?

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Texas Alliance of Oil and Gas Producers

Trump Is Expected to Sign Orders That Could Expand Access to Fossil Fuels

Trump Is Expected to Sign Orders That Could Expand Access to Fossil Fuels

After working against Barack Obama’s effort to halt fossil fuel exploration and curb climate change, Trump will complete his task, to do away with environmental policy within this week, signing two orders to enlarge offshore oil and gas drilling investments and bring back conservation on public lands.

President Trump’s executive order

President Trump signed an executive order on Wednesday, directing Ryan Zinke, his interior secretary to review all national monuments designated by the previous presidents under the Antiquities Act enacted in 1906. The main intention is to roll back the borders of secured lands, to open them for drilling, mining, and logging.

After that, the president is expected to make a follow up on Friday with another executive order purported to open up secured waters in the Atlantic and Arctic Oceans to permit offshore drilling. The order would help direct Mr. Zinke to scrutinize any Obama Administration plan that would hinder offshore drilling in the next few years. The Friday order is also expected to help lift a permanent ban that Mr. Obama issued in December 2016, to protect his environmental conservation legacy from Trump, who is allegedly a drilling enthusiast.

The initiative would begin to fulfill the major campaign policy that Trump anticipated would help create new energy sources and eventually elevate job opportunities and employment rates.

What are the experts saying?

Experts in the law have a different perspective, as they stated the reality is quite complicated. The orders enacted, would possibly not create job opportunities, or even generate new energy source shortly. Oil prices are around $50 a barrel, and more companies are investing in oil well drilling. Very few of them will dare take the risk to engage in costly offshore drilling activities.

Law experts also mentioned that the process of undoing Obama’s regulations is tedious and hectic. It would take more than a flick of Trump’s pen. All the legal challenges that the order would face could take several years to resolve completely. Without any action from the Congress, they could be upturned by Mr. Trump’s successor.

According to the managing director at Clear-View Energy Partner, the president can’t create jobs by signing a piece of paper, which rely on the combination of technology and economic, and yet he doesn’t control them directly.

Other concerned parties are on the move to support and celebrate Trumps orders. Some Oil and gas companies, along with Mr. Trump’s political supporters confidently agree with the executive order, as they think it will not produce new oil rigs in the few years ahead.

Environmentalists, on the other hand, have warned against drills, stating that it could lead to more devastating events and oil spills, similar to the one that took place in the Gulf of Mexico. The director of upstream issues for the AMI (American Petroleum Institute) said that the changes aren’t necessarily going to bring any significant improvement in gas and oil production shortly, but will eventually create job opportunities and economic advancements later.

The vice president of Oceana, Jacqueline Savitz still holds that offshore oil drilling investments is unnecessary and very dangerous.

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OPEC discusses reducing supply into 2018, causing oil to rebound

OPEC discusses reducing supply into 2018, causing oil to rebound

Introduction

OPEC is once again playing its cards under the table as it becomes clear that the 6 months output cuts were not enough to bring back sanity to the oil and gas market. The main aim of the Vienna meeting is to deliberate on the agenda of a possible extension of oil cut deal by another 9 months up to March next year 2018. These follow reports that the oil market is now booming with stockpiles of unaccounted for crude oil.

These high stock piles are to one, the accumulation of oil stock over the years and that the United States, Libya, and Nigeria increased their oil and gas production levels. The increase in production by these countries effectively balanced oil stockpiles in the international markets making the 6 months OPEC deal ineffective. The 1.2 million barrels per day which OPEC targeted to cut was offset by the production increase from the United States and Libya.

Oil and gas tag of war

From the look of things, oil and gas production in the world market is becoming a tag of war with OPEC and Russia on one side and the United States on the other side. While OPEC and Russia is hell-bent on reducing oil stock piles in order to control prices, the United States and its business allies are busy countering the decision made by OPEC. The oil and gas cartel has emphasized that whatever decision made by the United States regarding oil production should not affect their production policy. OPEC remained optimistic that in the long run, they will be able to curb the existing oil and gas production glut in the market.

Oil and gas companies stand to reap huge profits arising from price increases later in the year should the extension period be passed. The main aim of OPEC is to champion the interest of member countries through the collective implementation of policies on oil and gas production and export. It passes resolutions to ensure that member countries benefit from their oil and gas investments. OPEC also exists to ensure a steady and reliable supply of oil and gas to consumer countries.

The extension of production output cuts agenda has opened doors to market speculators such the hedge funds. The United States is also planning to boost its oil reserves amidst expectation of a rise in oil prices. As much as OPEC meet and make decisions on oil and gas production, the fact remains that it lacks the machinery to carry out its own policies other than the good will of the member countries. This in itself is a window that some oil and gas companies can capitalize on to exceed their production limit leading to unaccountable oil and gas figures. Oil and gas companies are making a booming business

Conclusion

A shortage of oil and gas in the world market causes inflation. Oil and gas companies, however, stand to reap huge profits as a result of a reduction in supplies which drive prices high. OPEC and Russia must stabilize prices despite the increase in oil and gas production from the United States and its business allies. To strike a balance in this oil and gas tag of war, it is only fair for OPEC to recommend deeper oil and gas output cuts in the coming years.