Can individuals own oil wells? Yes, and the path can be clear

Ways to own an oil and gas interest

Surface plus mineral rights

Some owners hold both the surface estate and the mineral estate. When minerals are included, the owner can lease to an operator for a royalty or choose to participate in development. Title clarity and lease terms drive outcomes.

Mineral rights only

Mineral rights can be severed from the surface and bought or inherited. Mineral owners can sign an oil and gas lease and receive cost‑free royalties, or they can participate in a working interest for a larger, risk‑bearing share of revenue.

Working interest in a specific well or program

A working interest shares drilling and operating costs and receives revenue after royalties. It is an active stake that typically qualifies for powerful tax deductions tied to drilling and development, subject to structure and eligibility.

Royalty interest from leasing minerals

A royalty interest receives a cost‑free share of production revenue. It does not pay drilling or operating costs and is generally treated as passive for tax purposes, though it may qualify for percentage depletion on production income.

What investors gain from direct ownership

Potential cash flow tied to production

Owners can receive monthly distributions once a well is on line. Strong wells can produce for years, although output declines over time and varies by basin and design.

Tax advantages built into the code

• Intangible drilling costs (IDCs): services and consumables used to drill and complete, often the majority of upfront cost, are typically deductible for qualifying working‑interest owners who elect to expense.
• Tangible drilling costs (TDCs): physical equipment is capitalized and depreciated, commonly over five or seven years using MACRS.
• Percentage depletion: eligible owners may deduct 15 percent of gross income per property, subject to limits, and this can continue after basis is recovered.
  These provisions can lower effective capital at risk and improve after‑tax returns.

Long‑term revenue and diversification

Productive wells can generate income for years. Direct exposure to a physical commodity can diversify a portfolio concentrated in financial assets.

How to acquire an interest

Purchase mineral rights

Buy minerals through private transactions or auctions. Confirm title, royalty burdens, and existing leases before closing.

Inherit minerals or producing interests

Estate transfers commonly pass mineral estates to heirs. Gather division orders, prior leases, and check stubs to establish ownership and income history.

Participate directly through a drilling partnership or joint venture

Accredited investors often enter through a direct participation program that funds one or more wells. Revenues, expenses, and tax items pass through to owners via K‑1s. Review the Authorization for Expenditure and the Joint Operating Agreement carefully.

What a capable operator should provide

Expert selection and execution

Look for basin expertise, modern seismic and engineering, and proven discipline in cost control and completion design. Better rock and better plans reduce avoidable risk.

Clear governance and cost visibility

A well‑constructed JOA defines voting, budgets, cash calls, and defaults. AFEs should separate IDCs from TDCs and reconcile to invoices.

Transparent reporting and tax support

Expect monthly property statements, LOE detail, production volumes, and timely K‑1s. Good records support IDC elections, depreciation, and depletion.

Is direct ownership a fit for you

Fit and requirements

Direct participation suits accredited investors who understand trade‑offs. A working interest bears costs and, during drilling, may carry unlimited liability, which is the price of early tax benefits and control. A royalty interest is cost‑free but passive and does not receive IDC deductions.

Documents to review before you commit

• Prospect geology and type curves
• Lease terms and royalty burdens
• AFE with IDC and TDC splits
• JOA provisions on operations and voting
• Basis and placed‑in‑service plans for equipment
  These items frame risk, cash flow, and after‑tax results.

Next steps for prospective owners

Request a prospect package, confirm whether you will hold a working or royalty interest, and align structure with your tax plan. Build base‑case, downside, and upside models that include price sensitivities, decline rates, and the full tax stack.