Archive for August, 2009


Posted by Blacky on Sunday, August 16th, 2009

Being the most capital intensive enterprise on the planet, the oil and gas business is perpetually searching for more capital. Even the major oil companies seek joint venture partners, and oil and gas investors to spread the risk of exploration over multiple oil and gas projects.

Medium to large independent oil and gas companies raise capital through stock offerings, debt, private placement memorandums, and also use joint venturing as a means of meeting the capital demands for growing their reserves.

Companies ranging from small independents, to mom and pop oil and gas producers rely on outside investors to build their production base and spread risk.  It is the smaller  oil and gas firms that are the backbone of U.S. domestic oil and gas industry, accounting for 70% of the oil and gas produced in the U.S.

An oil well may take 5, 10 even up to 40 years or more to produce all its bountiful profits, but the cost of drilling, completion, and production infrastructure is required in advance of any of the profits.  It is this dilemma that creates the opportunity for oil and gas investors. By taking a smaller percentage in multiple oil and gas exploration projects, both the company and the investor benefit, and real opportunities are created for oil and gas investors, be they large or small.

A reasonably structured oil and gas prospect that is geologically sound, can give an investor multiple returns of the investment by directly owning a fractional interest in a productive oil and gas exploration project.  The investor is able to take advantage of the company’s expertise, and the company is able to recover some of its overhead and investment incurred in developing and administering the project.

Another huge advantage for the oil and gas investor is the provision in the U.S. tax code   that allows investors to deduct most of their investment from taxable earnings.  In the case of the inevitable dry holes, 100% of the amount invested is deductible.  This provision has been a part of the U.S. tax code for 70 years.  It supports domestic oil and gas production by rewarding small oil and gas investors for the risks they take.

Over the 147 year history of oil and gas production, many fortunes have been won and lost.  Oil is the origin of most of the greatest family fortunes in the world.  It is this allure that compels investors to play to win, the most exciting game on earth.

Jim (Blacky) Pryor, Wildcatter