Our constantly expanding, industrial society depends on oil and natural gas to maintain the world’s growing population and to fuel the wheels of commerce. The ever-increasing consumption of fossil fuels driven by the increased demand from the developing economies of the world, including China and India, exerts pressure on existing supplies and has continued to push prices higher for these finite resources.
Direct investments in oil and gas drilling projects allow sophisticated “accredited investors” to share in the growth of the industry resulting from the increasing worldwide demand for hydrocarbons. Oil and gas investments offer the potential of monthly cash flows, as well as tax benefits and portfolio diversification.
The oil and gas industry offers a number of options for investing, including buying stocks in publicly-owned energy companies, oil and gas mutual funds, royalty funds, commodity trading, and investing directly with independent oil and gas companies. Texlark Exploration Co., Inc. is a privately-owned, independent oil and gas company which offers direct participation to private investors, and/or investing entities, in our various drilling programs.
All investments carry some varying degree of risk, therefore, potential oil and gas Investors need to be able to financially bear the total loss of investment capital in the event that the project is not economically successful. Texlark strives to minimize the business risk of its programs by performing thorough geological, geophysical and engineering evaluations prior to deciding whether to offer each of its drilling programs. You may fill out the contact form on the “Contact Us” page if you desire more information concerning the typical risks associated with our oil and gas investments.
Only those individuals and investing entities which are sophisticated “Accredited Investors” should invest in direct participation oil and gas programs.
An individual is considered an “Accredited Investor” if he/she (a) has an individual net worth, or joint net worth with his/her spouse, which exceeds $1 million at the time of the purchase, excluding the value of his/her personal residence or (b) has income exceeding $200,000 in each of the two most recent years, or joint income with a spouse exceeding $300,000 for such period, and reasonably expects to reach that same level of income in the current year.
If you are interested in participating and would like further information regarding the investment opportunities which Texlark Exploration has to offer, please visit the “Contact US” page, fill out the contact form and we will contact you directly.
The domestic production of oil and natural gas provides a measure of stability against fluctuations in the global energy market by reducing our dependence on foreign imports. Since many major oil companies are moving their operations abroad in search of mega-discoveries, Congress has provided tax incentives for the oil and gas industry in order to promote energy exploration in the United States.
Each participant in an oil and gas project is entitled to certain tax deductions including intangible drilling costs, depreciation, operating costs and depletion allowance. An Investor may be able to offset his/her taxable income from other sources with the substantial deductions available from investing in oil and gas wells.
The information provided below is not intended to be an all-encompassing explanation of the tax implications generated from all oil and gas investments. Tax considerations related to an investment in an oil and gas program vary with individual circumstances. Any prospective investor should obtain professional guidance from his/her tax advisor in order to fully evaluate the tax risks associated with oil and gas investments
Intangible Drilling Costs (IDCs) are drilling expenditures for non-tangible items such as the drilling rig, chemicals, equipment rentals, fuel, labor, trucking etc. IDCs normally represent 70% to 85% of the well costs and may be deducted 100% against taxable income in the first year. To illustrate this point, if $100,000 were invested in a project with 80% IDC’s, the participant would be able to deduct $80,000 from his/her taxable income for that year. Investors in the 35% federal tax bracket would save $28,000 ($80,000 x 35%) in federal income taxes for that tax year.
The costs of oil and gas equipment, or tangible items, such as casing, pumpjacks, heater-treaters, tanks, tubulars, wellheads, etc. are deemed to be Tangible Drilling Costs (TDCs). These costs are capitalized and depreciated over a period of seven years. In the above example, the remaining $20,000 investment after IDC’s would be TDCs and would result in additional first-year tax savings of $1,000 ($20,000/7 x 35%).
Cost depletion and Percentage depletion are the two methods by which an Investor may recover the capitalization cost of the oil and gas property after a well is placed into production. The taxpayer may take a deduction for the greater of the two methods.
Cost depletion is computed on the basis of initial capitalization costs. A portion of these costs can be recovered each year based on the percentage of the production volume for the year compared to the total estimated recoverable oil and gas reserves at the beginning of the year.
Percentage depletion is computed on the basis of the income from the property and is equal to 15% of the gross revenue from a producing oil and gas property. The tax shelter created by the percentage depletion allowance continues for as long as the well produces hydrocarbons.
Operating costs are the costs associated with operating oil and gas well after it has been placed into production. These costs include administrative costs, electricity, pumper charges, repairs, roustabout expenses, saltwater disposal, etc. Amounts paid for operating a producing well are deductible as ordinary business expenses in the year in which they are incurred.