Why the Wealthy and Savvy Investors Love Oil & Gas Investments (And You Should Too)

Why the wealthy and savvy investors love oil and gas investments and you should too. This is the beginner's guide to generating massive returns with oil and gas. What's going on guys? In this video we're going to be getting into a step by step guide from a second generation oil and gas gal on how to invest in oil and gas to make more returns on your money than investing in real estate or in the stock market. We're going to be covering what a working interest is, how to get started in oil and gas and its amazing tax benefits. What is a working interest and why it matters? A working interest means you have direct ownership in an oil well or multiple wells. With a working interest, you share in the profit and the expenses to drill the well as well as the ongoing monthly expenses. And you earn a share of the revenue from every barrel of oil or mcf of gas produced each month for the life of the well. Some wells produce cash flow for 30 plus years, making it a great long term wealth building asset. I even have wells in my personal portfolio that were drilled back in the 70s and they're still paying out today. Now let's talk about the amazing tax benefits. Investors can realize up to 80 to 90% of their investment in depreciation in year one, which comes from the intangible drilling costs. These are things like fuel and labor that can offset any kind of income, including W2 and capital gains. Wow, that is huge. So how is this different from other investments? Unlike real estate where the quarterly cash flow isn't that great and you don't realize the majority of the gains until the assets divested years down the road, oil can pay out much faster, returning your initial investment in like 12 to 24 months depending on the price of oil and how well the wells actually produce. And if that weren't exciting enough, the tax benefits are amazing. Working interest can offset any type of income, ordinary, active, passive and even capital gains. And guess what? There is no recapture because the depreciation appreciation came from drilling the wells. I love working interests. It's a real physical asset tied to energy production which is a necessity for the global economy. How do oil and gas investments actually make you money? There are two primary ways to profit. You've got monthly cash flow which comes from the production of the oil. Each month the operator sells the oil and gas to produce income. And the second way is from the first year tax savings that drastically reduce the taxes that you're going to pay. And then you get ongoing deductions that reduce the amount of taxes you're paying on the income. So what kind of returns can you expect? And this is really all going to depend on the type of project you invest in and their strategy. But many projects target 20 to 30% annualized returns and some are even higher. It's not uncommon to get 50 or 60% of your invested capital back in the first year. If you're investing in newly drilled wells, you'll typically get the highest returns in the first, first few years when production is at its peak. And then each subsequent year it gets lower and lower as the oil and the wells deplete. It's really important to find out what the depletion rate for the wells is or what it's expected to be and what the value is in different areas. Here's an example, and this is completely hypothetical. Let's say you make a hundred thousand dollar investment into an oil and gas deal. This could yield you an $85,000 deduction in year one and then return $60,000 back in production the same year year and probably look more like 40 or $50,000 in production. And then depending on that depletion rate, you can reduce that annual income by 10% or whatever the depletion rate is for the area that you're in. So let's say it was 40 this year, you'll knock 10% off for the next year. So the next year might be 36,000. It's really important to figure out again what the production on those wells are and what the depletion rate is. It's not like real estate where you have a certain number of doors and you know what the rent is. So there's a little more estimating, figuring that have to go into the prediction of how wells are going to produce and what the returns are going to be. Why is it recession resistant? Oil prices may fluctuate, but the demand for energy remains strong. And even when you're in an economic downturn, you still need oil and gas. And it's a really great hedge against inflation because oil prices tend to increase as inflation increases, which really helps investors protect their purchasing power. This makes it a real asset investment with long term value. Let's get into real estate investing, how you make money. You've got rental income, which comes from the monthly rent checks that can provide steady cash flow. You also have appreciation and this is where the real money is made. Property values tend to rise over time. The challenges you've got tenant headaches, late payments, evictions, property damage. And you've also got maintenance costs, leaky roofs, plumbing repairs and constant upkeep. And then you've got property taxes and insurance, ongoing expenses that can eat into your profits. But you do have some great tax benefits. You've got depreciation, so you can write off the property value over 27 and a half years. And you can offset passive income. You've also got mortgage interest deductions. So let's look at a real world example. You buy a $500,000 rental property. If it appreciates at 3% per year, it's worth 650,000 in 10 years. But you need to factor in property taxes and risks. Now let's get into oil and gas investing and how it can make you money. So you do get monthly cash flow. I love it because it's not quarterly, it's monthly. You earn monthly income from every barrel of oil and mcf of gas produced. Also, you've got long term passive income. A lot of these wells are producing for 20 plus years. But there are some challenges. Like every asset class out there, you've got monthly ongoing expenses. You've got oil price volatility, the market's flow fluctuate and that affects your payout. And then you've got the actual production of the wells themselves. You know, sometimes we've got gushers and sometimes they trickle out a little bit slower. And then it also requires accreditation verification. So it's not open to everybody. But the tax benefits are amazing. This is where oil and gas dominates. First year deductions can be up to 90% of your investment amount. That's huge. You can write off the intangible drilling costs against active income, ordinary income, just by making the investment. Unlike real estate depreciation, which takes years and you're subject to potential recapture. Oil and gas has no recapture and you get it that year. Plus there's a 15% depletion allowance, which means you're only paying taxes on 85% of the income. Here's a real world example. You can invest $100,000 into an oil well project. You could deduct up to $90,000 in year one, generate monthly cash flow and reinvest those into more wells without dealing with tenants or maintenance. Real estate is really great for long term stability and appreciation. Oil and gas is unmatched for its tax efficiency and cash flow. For high income earners, oil investments can offset active income, something real estate just can't do. Unless you're a real estate professional. Both have their place. But if you want to maximize cash flow, reduce your taxes and skip tenant headaches, Oil and gas might be the ultimate passive income strategy and I challenge you to think about how you can really utilize this asset class to capital stack. So do you want to learn more about tax advantaged investing? Make sure you follow me for more expert insights how to Get Started in Oil and Gas Investing Step one is what are your investment goals? Are you looking for monthly income? Do you need to offset active income? These kinds of questions will help you to determine if you should invest in royalties or working interests. If you just want monthly income and you don't really care about the tax benefits, royalties might be the right path for you. But if you're looking for monthly income and you need those amazing tax benefits, working interest is definitely where you want to be. Step two is understanding accreditation requirements. Most oil and gas investments are limited to accredited investors. This is individuals with $200,000 a year in annual income, 300,000 for couples or you've got a net worth of 1 million or more. If you fall into that category, here's the next step. Step Step three is going to be find the right opportunity. In my opinion, the two most important things to look for is who and where reputable operators look for companies with a lot of experience and a really strong track record. You also want to drill in proven areas. You want to drill in areas that have already been proven to have oil reserves. No wildcatting. Some of the top proven areas in the United States are the Permian Basin, the Eagle Ford, Anadarko, Niobrara and Bakken areas. If somebody presents me with an opportunity to drill drill in New York, I'm probably going to pass. Step four is we're going to evaluate the opportunity. There are a ton of things that you really need to take into consideration like where are they at in the drilling process? What are the cost to drill? What is the expected production? What are the returns at different oil prices? What is the break even price of oil for the project and do they have a contingency in place in case they need additional capital? For a copy of my due diligence checklist and everything I evaluate on every deal I do, you can get it in the link in the show notes. Once you've gone through through all these steps, the next thing is to invest. The next thing you know you have this amazing K1 loss that really did reduce your taxable income and the monthly income is hitting your bank account. And if you're ready to really compound this, I have another video on capital stacking that will knock your socks off. Oil and gas investing isn't just for the top 1% anymore. It's for anyone who wants to grow their wealth and slash their taxes for more educational content and real world examples. Make sure you follow me. My goal is to provide a ton of education so that you can make these kind of investments and feel confident in your choices. I'm Courtney Muller. Thank you so much for watching.