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Energy Programs

Many investors are interested in learning about how they can participate in oil and gas programs as well as other alternative energy programs. Energy offerings provide investors with an alternative investment class to diversify their overall portfolios, and the potential for tax deductions and income. These programs can differ in how they are structured and the locations in which the operating companies drill/operate.

Some energy programs allow investors to participate as General Partners where they can receive tax deductions against ordinary income by the intangible drilling cost deductions. These expenses may be deducted in the same year of the investment which can potentially be a huge benefit for someone that has received a large amount of income in a given year such as the sale of a business or real estate. Investors can also
elect Limited Liability status and receive significant
tax deductions against passive income.

Energy programs can vary in the location in which they operate as well. For example, some oil and gas programs may drill in the geological formation known as the Appalachian Basin, found in states such as Ohio and Pennsylvania. Other companies may choose to partner with the leading energy companies in the Gulf of Mexico. It’s important to evaluate the experience and track record the company has had in a given location.
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      Royalty Interest:

Royalty interest in an oil, gas and mineral lease represents an interest or revenue share from the production of oil and gas. By definition, a royalty is part of the mineral title to a defined parcel of land and represents ownership of a percentage of gross revenue from the production of oil and gas wells on that property. A royalty interest does not involve the expense or risk associated with production, but does share in the mineral reserves.

Royalty interest may qualify as a "like kind" 1031 exchange into a fee interest in investment real estate. Exchanging into oil and gas royalties can present real estate investors with an opportunity to diversify their portfolio within the energy sector, whose performance usually does not directly correlate with the performance of traditional real estate.

      Working Interest:

Royalty interest should not be confused with "working interests", which involves drilling and exploring for potential operating wells. Working interest usually involves a direct investment (non-1031) into a partnership of an oil and/or natural gas exploration program. This form of ownership permits investors to receive the majority of any production that is obtained from the programs discoveries. However, it also bears more risk in the event of a "dry hole."

      Alternative Energy Programs:

Alternative energy programs may consist of an investment into wind, solar, ethanol, water and other natural resources. These are usually asset classes that differ from the traditional oil & gas investment. Alternative energy investments may provide the potential for significant capital appreciation should our nation move more towards alternative energy fuels in the future.

Potential Benefits:

  • Potential monthly cash distributions

  • Significant tax write-off in first year of investment

  • Income may be partially sheltered by depletion allowance

  • No capital gains tax due on real estate exchange into energy sector

  • Diversification into an alternative asset class

  • Program can potentially have multiple wells and drilling areas for diversification

Risk Factors:

  • Oil and gas exploration and development is speculative, involves a high degree of risk and, as such, the results of this activity cannot be forecasted accurately.
     
  • Although steps can be taken to mitigate risks, no assurance can be given that an investment will be recovered nor that any profit will be realized since no assurance can be given that production will be obtained in profitable quantities.

  • Only those accredited investors who can withstand the loss of the subscribed amount should consider investment.

  • Additional risks associated with Energy Investments are outlined in the prospectus or private placement memorandum which is available by calling 561.368.7185.
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1031 Alternatives Group, LLC - 1200 N. Federal Hwy., Ste. 200, Boca Raton, Florida 33432


Copyright 2006 1031alternatives.net. All rights reserved.
Securities offered through GF Investment Services, LLC. Member FINRA/SIPC. 2080 Ringling Blvd., Third Floor Sarasota, FL 34237 (941) 441-1902. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. GFA Wealth Design is a DBA of Global Financial Private Capital and GF Investment Services. 1031 Alternatives Group is a DBA of GF Investment Services.

This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. The applicable tax codes apply to and relate to federal law only. Individual states may have their own additional tax codes. Please contact the appropriate tax and legal professional in your state. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation. Properties represented here are not current offerings and properties of this nature may not always be available for purchase.