Many of us have a dream of owning an oil well. If Jed Clampett could do it, so can we.
Oil and gas exploration in the U.S. is encouraged by the U.S. government in the form of strong tax incentives. Investors also receive monthly revenue and the satisfaction of knowing they are helping the U.S. to become energy independent.
Investing in oil drilling can be risky
For those who really want to own an oil well, understanding the risks involved is imperative. Only one in three exploration wells successfully strike oil. This makes the cost of finding oil and establishing a producing well a costly and chancy endeavor.
Oil well investment can be very profitable. The necessary capital required to conduct oil and gas exploration funds the costs for geologists to study a parcel of land, preparing the site for drilling and the cost of the drilling equipment.
By understanding the complexities of oil exploration, investors are able to assess the risks involved and determine if they are suited for oil exploration and well ownership.
Longevity of the investment
Oil wells can produce oil for many years. Some have produced oil steadily for many years. This steady production of oil will ensure a monthly income for years to come.
Oil wells usually have a higher rate of production in the beginning. Eventually, they slow down to a steady production pace. Oil wells have a long production life which makes them a great investment that constantly and consistently earns money for an owner.
Cost of maintaining the well
While the cost of exploration and drilling an oil well can be expensive, the cost to maintain and operate an existing oil well is minimal. Some wells may go a year or longer before they require any repairs.
On rare occasions, some wells require excessive maintenance costs due to caustic fluids or chemical reactions that have occurred in the well.
Diversify your portfolio
Investing in oil or gas wells can add to the diversification of an investor’s portfolio. When the economy slows, oil and gas stock prices continue to rise. These investments can protect a portfolio’s performance during an economic slowdown.
Tax savings
Many costs associated with oil exploration and drilling are deductible. Intangible Drilling Costs (IDC), are all the costs associated with drilling a well except for the actual drilling. These costs are usually 65 to 80 percent of the total cost of drilling. A well does not have to strike oil or produce oil for these deductions, making this a great tax incentive for exploration drilling endeavors. The actual cost of drilling equipment, called Tangible Drilling Costs, is 100 percent deductible with depreciation over seven years.
When looking to invest in your own oil well, go in with your eyes wide open. Do your research and understand your risks. When you invest in your own oil well, you are investing in the U.S. economy and growing America’s energy independence.
