Invest directly in oil wells to capture tax benefits and cash flow

How direct participation works

What you own and how income flows

A direct investment typically purchases a working interest in a specific well or program. You share drilling and operating costs and receive your proportional share of revenues after royalties. Returns are calculated on net revenue interest, not just working interest.

How direct investments differ from stocks and funds

Unlike indirect exposure through equities or ETFs, a direct stake is tied to physical barrels and MCFs. It can deliver immediate tax deductions during drilling and potential monthly distributions once production starts.

Why direct well ownership appeals to accredited investors

Significant tax advantages that start in Year 1

• Intangible Drilling Costs (IDCs). Services and consumables with no salvage value, often 60 to 85 percent of upfront cost, may be deductible when incurred for qualifying working‑interest owners who elect to expense. Timing and documentation control outcomes.
• Tangible Drilling Costs (TDCs). Physical equipment such as casing, tubing, tanks, and pumping units is capitalized and depreciated, commonly over five to seven years using MACRS. Placed‑in‑service support is required.
• Percentage depletion. Eligible independents and royalty owners may deduct 15 percent of gross income per property each year, subject to per‑property and overall income limits. Percentage depletion can continue after basis is fully recovered.
• Working‑interest treatment. When drilling‑phase liability is present, working‑interest income and losses are generally nonpassive for Section 469 purposes. Early losses, often IDC‑driven, may offset wages or business income, subject to at‑risk rules.

Potential for attractive returns with balanced risk

Direct projects can deliver strong cash flow when wells perform, but they also carry geological, operational, price, and liquidity risks. A disciplined approach to prospect quality, cost control, and hedging helps manage these exposures.

What a capable operator should provide

Expert management and clear communication

Expect end‑to‑end execution across geology, leasing, drilling, completion, and production operations. Look for timely K‑1s and property‑level statements that separate IDCs, TDCs, lease operating expenses, and production volumes.

Careful project selection rooted in data

High‑quality work flows from modern seismic, engineered well design, and basin‑specific experience. Programs in proven fairways with clear AFEs and realistic type curves reduce avoidable risk.

Governance and alignment that protect capital

A well‑constructed JOA defines roles, voting, cash calls, and cost controls. Alignment on budgets, hedging, and development cadence supports predictable execution.

Is direct oil well investing right for you

Fit and requirements

Direct participation is best suited to accredited investors who understand the trade‑offs. A working interest carries cost responsibility and, during drilling, may carry unlimited liability. The reward is early tax relief and a direct link to production income. Royalty interests are cost‑free but passive and do not receive IDC deductions.

Risk and return considerations

Model scenarios that include dry‑hole risk, cost overruns, price volatility, and limited liquidity. Balance near‑term tax relief with long‑term production economics and decline curves.

Getting started: a practical checklist

Steps before you commit

• Confirm the ownership structure and whether you will hold a working interest or royalty interest.
• Review the JOA for decision rights, cost sharing, cash calls, and default terms.
• Analyze the AFE and the IDC versus TDC split. Validate that invoices will reconcile to line items.
• Verify placed‑in‑service plans for equipment and a schedule for first production.
• Build a tax plan with your advisor that covers IDC elections, depreciation, depletion, and at‑risk amounts.

Documents to request

• Prospect package with geology and type curve assumptions
• AFE with detailed cost categories
• Draft JOA and subscription materials
• Leasing status and royalty burden
• Development timeline and operating plan

A clear path to tax‑efficient energy exposure

Direct oil and gas participation can combine immediate deductions with durable production income. Use IDCs for near‑term impact, depreciate equipment for multi‑year relief, and claim percentage depletion as wells produce. Structure, documentation, and operator quality determine how much benefit reaches your return.