Investing In Oil Wells 101: Benefits & Revenue Paths

There are multiple ways to create revenue from oil and gas via three primary segments: Upstream (Drilling and Production), Midstream (Transportation), and Downstream (Refining and Sales). At TBV we focus on Upstream due to the high potential for monthly cash flow and significant tax benefits. We seek out non-operated or non-op interests alongside publicly traded companies or large independents. Through our mineral leaseholds, we gain the right to participate in a well or group of wells with the controlling operator. Forced Pooling laws are the legal mechanism that allows this to happen.

Forced Pooling is when state or regulatory authorities compel multiple mineral rights owners to work together for the purpose of drilling and production to ensure that the resource is efficiently extracted and the benefits are distributed among all the rights owners within the pool. Forced pooling helps prevent inefficient drilling and ensures that oil and gas resources are not left untapped because of disagreements between property owners.

Stock market investments are foundational elements of a strong portfolio. But they aren’t the only path you can take. Due to the heavy taxation and lack of cash flow options, diversification is essential for lasting stability and building generational wealth.

On a global scale, the oil and gas industry is arguably one of the largest. The U.S. made a concerted effort to increase homeland production of this crucial energy source and decrease dependence on foreign entities after the financial crisis of 2008. More recently, the total revenue of our nation’s oil and gas industry came to over 332 billion dollars in a single year.[3]

But the big corporate giants aren’t the only ones benefiting from the windfall. Our globally known, publicly traded, and large independent U.S. oil and gas company operators are collecting significant returns through direct participation investments.

Oil and gas drilling investments offer significant tax benefits unique from any other industry, which is one of the primary motivations for new investors. Depending on the type of partnership, many expenses and costs are fully deductible, even before any resources are extracted.

Intangible drilling costs, intangible completion costs, tangible drilling costs, and tangible completion costs are all deductible. Active Income Deductions can be deducted against ordinary income if participation in an active business structure.

Additionally, any oil company that produces or refines less than 50,000 barrels of oil per day is eligible for a Depletion Allowance. This exemption excludes 15% of the gross income from oil and natural gas production. [4]

Other examples of potential tax benefits include lease costs, equipment purchases or financing, purchasing mineral rights, operational costs, legal fees, accounting and administrative costs, and more. All of these line items can be capitalized and deducted.

It’s also possible to offset other active income channels with potential losses in oil investments, reducing your net taxable income and keeping more money in your pocket. For more information, also see our Tax Deduction Example resource.

The Tax Reform Act of 1986 introduced “Passive” income (i.e., earnings from rental properties, limited partnerships, etc.) and “Active” income (i.e., income, salary, etc.). Passive activity losses may not be offset against active income. However, a working interest in an oil and gas well is considered “Active” income and, as a result, may be offset against income from stock trades, salary, and the like. (Tax Code Section 469(c)(3)).

Royalties equate to income received by a stakeholder in working oil wells. As a direct participant, you hold a lease granting you mineral rights to a portion of the land held by the landowner. This status makes you eligible to receive royalties paid by oil and gas companies that operate wells and extract natural resources on lands that you own the royalties.

An oil well investment incurs a slew of non-salvageable expenses associated with the operation and extraction of resources. From preparation and labor to repairs and equipment supplies, these costs cannot be salvaged for the equal sum of their value.

In some cases, intangible drilling costs can account for 60 to 80 percent of operating costs. Resources from the Committee for a Responsible Federal Budget confirm that all qualified IDCs are 100% tax-deductible in the first year.[5]

By leveraging a data-driven investment model designed and perfected over a decade, we curate uniquely structured opportunities designed to maximize the potential benefits of direct participation. Our hand-selected oil and gas opportunities and the drilling of wells in lucrative regions offer substantial tax advantages and the opportunity to create significant monthly cash flow.

We identify, evaluate, and acquire non-operating leaseholds in the nation’s most hydrocarbon-abundant regions, allowing our partners to engage directly in the drilling of wells alongside globally renowned operators for high-value returns.

We have multiple wells and gas projects in operation now and are continually adding fresh ground and new opportunities. By investing first-hand in an existing or developing oil and gas well, you have the power to influence the trajectory of your financial venture.

Once the resources are under production and revenue is generated, the revenue path is multifaceted and flexible. You could reap the benefits of royalties and cash flow, tax benefits, and more.

Thoroughbred is strategically aligned with some of the nation’s oil and gas leaders in the hottest trending oil regions in the US. With stacked-pay geology, top-flight industry technology, and well economics among the best the industry has to offer, our STACK and SCOOP Plays have been our primary focus and consistently generate excellent results.

Our partners are realizing significant monthly cash flow potential and collecting huge tax benefits by partnering with highly respected publicly traded operators in the core of North America’s most coveted and active horizontal shale development.

Legacy-level generational wealth is built on the framework of diversified and creative investing that sees beyond a quick payout and into the impact. This is not another traditional “sign here” investment.

This is an opportunity to sink your teeth into something tangible—something with a vision and a purpose. It is an investment opportunity decades in the proving and with the potential to be highly lucrative.