How Much Does it Cost To Invest in Oil Wells?
How Much Does it Cost To Invest in Oil Wells?
The vaunted position U.S. oil holds in the public imagination, both through its historic importance and its continuing 13-million-barrel-a-day domestic demand, may make profiting from the industry seem like the exclusive domain of international cartels and billionaire families.
However, retirees, established families, and anyone with a healthy 401k and pension options can grow their wealth through oil well investment. Emerging oil well investment models that favor ownership over restricted, short-term speculation can open up tax advantages, accelerated Return on Investment (ROI), lower-risk divestment options, and ongoing monthly distributions to average Americans.
So, how much does it cost to invest in oil wells?
Oil Well Investing May Be Less Expensive Than You Think
There’s a sliding scale to investments in any commodity, and potential yields increase with a greater commitment. Generally, though, the competitive market for earning a sustainable oil well stake begins at around $100,000.
A $100,000 investment in development of the oilfield which possibly doubles in value during the holding period could provide a multiple on invested capital equal to 2:1 or more.
How To Invest in Oil Wells
Traditional models of oil investment open to everyday Americans tend to follow the volatility of the barrel price. Exchange-Traded Funds and Oil Futures function much like common stocks, rising and falling in value as the complexities of the global energy demand play out. In these scenarios, investors are asked to make regular, crucial decisions relative to the short-term future of the commodity. As the ongoing COVID-19 pandemic has shown, oil is not immune to the fluctuations of broader prosperity.
However, as the U.S. Energy Information Administration has pointed out, long-term trends in oil and gas demand and price have already begun to rebound. With the U.S. emerging from a period of low production and usage, the outlook for investors interested in an ownership stake in oil wells seems promising.
Speak to an Expert
Oil is a complex commodity. No material substitute can fulfill the demand for energy, manufacturing, and consumer goods—the list of which extends well beyond the transport industry. And few commodities can match it for short-term volatility. Extreme temperatures in Texas, for example, can greatly impact prices.
That’s why you should speak with an expert when considering how to invest in oil and gas. Every investment involves risk, and even accredited investors are not immune to the impacts of unforeseen events.
You can, however, potentially limit your exposure by investing in innovative new oil well investment models that favor partnership and ownership over speculation and rapid-fire decisions.
Consider Investing in Direct Ownership of Oil Wells
Buying into an ownership stake in an Oil Fund entitles investors to a piece of the bottom-line profits, as well as the tax advantages and financial control granted someone who is in it for the long haul. Such investors do not have a controlling interest and are not responsible for the highly complex process of acquisition, development, and divestiture, but they may experience benefits that other types of investments cannot match.
Tax relief. The right kind of oil investment begins paying for itself before a well ever starts producing. The intangible costs of drilling a well, comprised of materials and labor, are by far the greatest expense; these costs are also up to 90% tax-deductible. So, a $100,000 investment is likely to include a 75% provision for intangible drilling costs that can amount to an income tax deduction of around $67,000. Additionally, that deduction can be applied the same year that the costs are incurred, offering an immediate ROI.
Monthly revenue distributions. The value of an oil well stems from the flow of oil and gas. These commodities attract an immediate value from the market, and profits from their sale may return to investors in the form of consistent distributions. Ownership investors may receive distributions within the first six months of production and potentially enjoy them for the productive life of the Fund.
Investment Scalability. Despite the increasingly sophisticated methods of finding and capitalizing on productive fields, an element of unknown potential exists with each Fund. Ownership models position investors to profit from the entire production of a Fund, rather than restricting them to a single well. This allows investors to realize the full value from their commitment.
Increased Divestiture Options. Oil well ownership also may allow investors greater control over their wealth creation. The managers of an Oil Fund may direct early success against the financial exposure of any project. The potential profit from this early divestiture can be passed on to investors as a reliable ROI and ultimately provide a rewarding conclusion to the investment within just a few years.
How Much Does it Cost To Invest in Oil Wells? It’s Your Call
The figures discussed above represent the starting point of oil well investment opportunities. Accredited investors can potentially increase their wealth by committing more to a promising Oil Fund or spreading their investment across several fields.
The dynamics of multiple on invested capital returns mean that when you own the acreage of a Fund, you may potentially profit from monthly distributions, the rising wealth of the ongoing project, and the increasing value of the land—all at once.
So the answer to the question—how much does it cost to invest in oil wells?—will depend on your overall investment strategy and goals.
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Investments in oil and natural gas partnerships are speculative and involve a high degree of risk. Oil and natural gas wells are naturally depleting assets. Cash flows and returns may vary and are not guaranteed. Past performance is no indication of future performance. Nothing herein shall be construed as tax or accounting advice. Investors may lose money. Some of the risks other than those described herein associated with investment in Larimer County Energy Fund are described in the Risk Factors section of the Confidential Private Placement Memorandum concerning the Larimer County Energy Fund accompanying, preceding, or following this Executive Summary. Prospective investors are urged to read and consider carefully the risks described in that section. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the investment opportunity described in this Executive Summary. Neither the Securities and Exchange Commission nor any state securities commission has determined the accuracy or completeness of the information contained within this Executive Summary or in the Confidential Private Placement Memorandum concerning the offering of limited partnership interests. The offering of limited partnership interests is made only by the Confidential Private Placement Memorandum, which must accompany, precede, or follow this Executive Summary, and an investment decision can only be made by the execution of definitive investment documents. Investors in Larimer County Energy Fund are required to be “Accredited Investors,” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.