Why Invest in Oil and Gas?
Diversifying your portfolio with the right oil and gas investments can offer some wildly-lucrative enterprises. Described below are several specific reasons why oil and gas investments can be so beneficial.
Investing in the stock market requires reams of research, lest you get stuck with a dud. Indeed, there are so many complex technical aspects to the stock market, and it can fluctuate so profoundly from day to day, that it can bewilder even experienced traders.
Oil and gas investments are a great deal more stable, and much easier for novice investors to master. In fact, you don’t need much background knowledge at all to begin to understand the field and make high-quality selections.
Return on Investment
Oil and gas offer, in most cases, a robust return on investment (ROI). In some instances, you might make ten times or more the sum you initially put in. And if a new source of oil is discovered along the way, you might find that you’ve suddenly become very wealthy.
Here’s another way to think about it: Try to recall all the price increases in oil and gas that you’ve seen in the past, say, twenty years. Had you invested in oil and/or gas twenty years ago, each of those increases would have meant extra money coming your way. And since oil and gas are fossil fuels and are thus limited, it’s reasonable to expect that their price increases will be even steeper in coming decades.
When you put money into certain companies, it often takes a long time -- at least a decade -- to make that money back, let alone to earn a profit. But with oil and gas, that period of time is often more than cut in half. Indeed, you might see a full oil or gas ROI in as little as two years. And that money should start coming in within two or three months of the date of your investment. No other kind of investment yields faster returns.
There’s a saying that people sometimes apply to investing: “No risk, no reward.” That expression doesn’t really apply to oil and gas investments, however. Instead, with such investments you can count on an influx of cash each and every month. And if you do invest in oil or gas and that project or company goes bust -- a rare event -- you’re allowed to write off your entire investment as a business loss. With how many other investments could you do that?
These investments also come rife with potential tax deductions. There are actually more possible tax deductions with oil investments than with any other kind of investment. Congress has established these tax advantages because it views the promotion of American energy independence as a vital national goal.
One type of deduction involves intangible drilling costs (IDCs). IDCs include a drilling project’s costs of fuel, labor, and anything else besides the actual drilling machinery. Normally, IDCs constitute between 70 and 85 percent of a well’s overall costs. The tax deductions for IDCs work this way: Imagine that you invested $100,000 in an oil-drilling operation, and 80 percent of the costs of that operation were IDCs. That comes to $80,000 of your money -- in theory, anyway -- going towards IDCs. That means you could subtract $80,000 from your total taxable income for the year in which you made the investment. It’s a healthy tax break, no doubt about it.
Tangible drilling costs (TDCs), on the other hand, are the costs of the drilling machinery, items like wellheads. The amount of money that you invested in TDCs becomes capital that depreciates -- which means you gradually recover those costs -- over a seven-year span.