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Market Talk | Portfolio Buzz looks at market events, equity and bond fundamentals and technical indicators to help investors make the right decisions about their portfolios |
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Investing in Oil and Gas
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Many investors don’t realize it, but there are ways of making money in the oil industry other than purchasing round lots of Texaco stock. The oil business is one of the last remaining true tax shelters in the United States, and the benefits to be derived from prudent investments are more attractive than ever.
For the investor with a tax problem, buying directly into drilling programs or individual prospects offers certain advantages that may be just what the proverbial doctor ordered. For example, intangible drilling costs are legitimate deductions, and they can even be prepaid (and written off) in the current tax year even though drilling operations may not commence until the following year.
In the event of a dry hole, all drilling costs can be expensed immediately. Should the drill bit find oil or gas, a minimum of 15 percent of the income from the well is free of income taxes forever. If the well is a poor one, a so-called "stripper," the portion of tax-free income jumps to 19 percent. (Most wells—oil and gas alike—become strippers at some point in their lives.)
But be forewarned that there are pitfalls as well as advantages to direct investing in oil and gas deals. Dry holes are an inevitable part of the game, and unscrupulous promoters are out there waiting to prey on the greedy and gullible alike. After oil and gas prices crashed in 2008, a lot of drilling deals went sour, and the petroleum exploration business got a bad reputation with the investment community that it did not necessarily deserve.
Much of the money that was lost then was invested unwisely for one reason or another, and a lot of the red ink could have been avoided by investors doing a little advance research into this risky and fascinating business. Let’s take a brief look at how the oil and gas game is played and see if it might be a suitable vehicle for you.
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Market Commentary
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On occasion, political and economic events become much more important to portfolio management than basic market fundamentals. War and terrorism around the world, new energy discoveries, a global credit crunch, or the behavior of global equity markets are all examples of market events that can impact our investments.
We believe that we can provide our customers with valuable information, commentary and opinions on how individual investors might react to these market events. However, as each individual and their portfolio is unique, visitors to Portfolio Buzz need to make their own decisions based upon multiple sources of information and basic research.
If you have additional thoughts, comments or opinion regarding these market events, please email them to us via the "Contact Us" section of this website. Cogent and well thought-out emails may be published here with or without attribution, as you direct in your communication.
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Must Read August, 2007 Article Predicting the Credit Crisis
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We found this article on TheStreet.com last fall, shortly after the Fed dropped its rates in a dramatic fashion.
For many of us, it has guided our investing strategy for over a year.
The insights in this article are profound as well as prophetic. As a result, we strongly urge you to read and understand it. What it has to say will be with us for many years to come and will fundamentally change the way we look at the global economy.
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