Investing Tips Information

In this economic downturn where is a safe (Ha! Ha!) or at least a reasonable place to make a dividend income of between 10% and 45%? OK, that sounds too good to be true, so let’s not concentrate on high numbers but let’s look at an example of an Oil and Gas Well Investment and what you need to know about investing in this arena.

Know the Qualifications:

First know the qualifications; you must be an Accredited Investor according to SEC rule 501, which states to qualify you must have a net worth of $1,000,000 or have earned at least $200,000 a year in the last two consecutive years with a reasonable expectation of doing the same in the current year. Or have a joint income of $300,000 for the same period also qualifies when there is a reasonable expectation this income level will continue.

Do Your Homework:

Next do your homework, know the companies and management teams and their relationships in order to judge their opportunity for success. Ask the following questions:

1. What company(s) is/are involved with making this investment a success?
2. What are the relationships of these companies?
3. How many successful wells have and/or are you involved in producing?
4. Where is the actual well being drilled?
5. What is the success rate of this area?
6. How many years of experience does your management team have?

Location, location, location:

Location, location, location is a retailers mantra, and it is the same for this type of investment. The location of the Well can tell you a lot about its potential success. Of course this is part of your homework, find what areas are producing and how much production the Wells in an area are producing. You can and should verify any information you get from a company with a reputable source. Sources include U.S. Government agencies like the Rail road commission, Securities and Exchange Commission and the Geological permitting agencies. Much of this information is online. Start by looking for the different Oil and Gas fields in your area and then use field names you find to narrow your search. For instance using the Barnett Shale field name I narrowed the search down to the overall production of the area and the specific companies owning/operating wells in this field. According to an article in the Barnett Shale Blog, this field is one of the largest producing fields in the U.S. now, producing 6% of the total U.S. production. Then using Wikipedia and searching using the Barnett Shale field name I found a few companies that are having good success here.

Know the Risks and Benefits:

Know the risks and benefits. Most consider the opportunity for a long term periodic income from royalty income the largest benefit. The term expected is from 50 to 100 years (not bad) with no decisions by management to not pay for a period (income is based on production/flow). There are many more tax benefits including an 85% taxation rate after all expenses are deducted. After receiving all the information about a prospective deal you should consult a CPA that specializes in handling this type of investment.

As far as risks, the company background and location will give you clues as to the potential success rate of a well producing. Risks are that the well will not produce enough to cover costs – your homework will take care of the biggest risk here. If the well is drilled in an unproven location (field) and/or using unproven techniques this can cause a low or no production well. No or low production means not enough income to cover expenses. As mentioned earlier do not accept company claims, make sure you verify all information with a third party with no stack in the deal.

This information is a guideline and is not meant to be a comprehensive guide to Oil and Gas Well investing. Always consult with your CPA and you should not allow your judgment to be replaced by any other information or recommendations.

More information about drilling wells in layman terms you can visit http://www.gulftexoperating.com/layman.php

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