How to Invest in Oil and Gas

What People Really Mean When They Say “Oil and Gas Investing”

When most people search for oil and gas investing, they are usually mixing together two very different paths.

One path looks like traditional investing. The other looks like direct ownership.

Those two paths behave differently, carry different risks, and are treated very differently for tax purposes.

Understanding this distinction is the foundation for everything else.

[Download the Investor’s Guide to Oil & Gas Investing]

The Main Ways to Invest in Oil and Gas

For many beginners, investing in oil starts with buying stock in oil companies or learning how to buy oil stocks through a brokerage account.

Public Market Investments

This is the most common path people encounter first. Public market exposure includes:

• Energy company stocks
• Oil and gas ETFs
• Mutual funds focused on the energy sector

These investments give you exposure to energy prices and corporate performance, but you do not own wells. You are buying shares of companies that operate in the energy space.

Key characteristics include:

• Traded through brokerage accounts
• Behave like equities
• No operational control
• Limited oil and gas specific tax benefits

For many investors, this feels familiar and accessible. It is also disconnected from the actual drilling and production process.

Direct Ownership and Private Participation

This is where oil and gas investing becomes fundamentally different.

Direct participation usually involves owning a working interest in a specific drilling program or well. Your capital is deployed directly into drilling, completion, and operations, not into a publicly traded company.

Key characteristics include:

• Private offerings, typically for accredited investors
• Capital tied to specific wells and projects
• Direct exposure to drilling results
• Different tax treatment based on ownership structure

This is where most of the confusion, and most of the bad experiences, tend to happen. It is also where education and trust matter the most.

See If You Qualify

How Direct Oil and Gas Investing Actually Works

Oil and gas company investment is not a black box. When done properly, it follows a clear lifecycle.

Prospect Evaluation

Everything starts with geology. Operators evaluate legacy fields, surrounding production history, and stacked formations that have already proven themselves in the area.

This is where discipline matters. Good projects are built on known geology, not speculation.

Drilling and Completion

Once a project is approved, drilling begins. This phase includes:

• Rig operations
• Mud logging and formation evaluation
• Setting casing and cement
• Completing viable pay zones

This is the highest risk phase, and also where real operator oversight makes a difference.

Production and Monthly Operations

After a well is completed and tied in, it moves into production. From this point forward, investors should receive:

• Monthly owner statements
• Production and revenue reporting
• Ongoing operational updates

Clear communication does not stop once the rig leaves. In our view, that is when it becomes most important.

Understanding Working Interest vs Royalty Interest

Understanding ownership structure is critical, and it’s one of the first things we walk through with prospective investors.

Working Interest

A working interest owner:

• Pays their share of drilling and operating costs
• Shares in production revenue
• Is treated as an active participant for tax purposes

This structure carries more risk, but also provides access to deductions tied to drilling and operations.

Royalty Interest

A royalty interest owner:

• Does not pay drilling or operating costs
• Receives a cost-free share of production revenue
• Has limited tax benefits compared to working interest owners

Both structures can have a place, but they are not interchangeable. Confusion between the two is one of the most common reasons investors are disappointed.

Oil and Gas Tax Benefits, Explained Simply

Tax benefits are a major reason many investors look at oil and gas, but they need to be understood correctly.

Intangible Drilling Costs (IDCs)

IDCs generally include non-salvageable costs like labor, drilling fluids, and site preparation. For working interest owners, these costs are often eligible to be expensed in the year they are incurred, subject to IRS rules and elections.

This is not automatic and it is not universal. Structure matters.

Depletion

Depletion recognizes that oil and gas reserves decline over time. Depending on the situation, investors may use cost depletion or percentage depletion to reduce taxable production income.

Why Structure Matters

These benefits are tied to ownership and participation. Simply owning energy stocks does not create the same tax treatment as owning a working interest in a well.

This is where a knowledgeable CPA becomes essential. Our role is to explain how the structure works. Your CPA determines how it applies to your situation.

Want a clearer breakdown of how structure impacts taxes?

Download the Investor’s Guide to Oil & Gas Investing

Risks to Understand Before You Invest

Investment opportunities in oil and gas carry real risk. Anyone telling you otherwise should be avoided.

Key risks include:

Geological Risk

Not every well performs as expected, even in proven areas.

Commodity Price Risk

Oil and gas prices fluctuate. Cash flow follows prices.

Execution Risk

Operator discipline, cost control, and decision-making matter more than marketing.

Understanding these risks does not eliminate them, but it allows you to evaluate whether they align with your goals and tolerance.

What to Look for in a Legitimate Oil and Gas Investment

In our experience, legitimacy shows up in patterns, not promises.

Things that matter:

• Operator involvement, not absentee management
• Clear explanation of geology and project rationale
• Regular communication during drilling and production
• Real reporting, not vague updates
• Cost discipline and low overhead
• Willingness to explain risk openly

Red flags usually involve urgency, guaranteed outcomes, or avoidance of specifics.

Questions to ask matter. Reach out to us if you’d like to discuss how we evaluate projects.

Contact Bass Energy & Exploration

Is Oil and Gas Investing Right for You

Oil and gas investing is not for everyone.

It tends to work best for investors who:

• Understand and accept risk
• Value tangible assets
• Have significant tax exposure
• Want diversification outside public markets
• Care more about discipline than hype

If this sounds like you, the next step is seeing whether you qualify for direct participation.

See If You Qualify

How BassEXP Approaches Oil and Gas Investing

We approach oil and gas the way we were taught over three generations.

That means:

• Focusing on proven Oklahoma fields
• Using stacked-pay strategies to create multiple opportunities per well
• Keeping overhead low and capital in the ground
• Staying involved in operations, not just paperwork
• Communicating clearly and consistently with investors

We drill responsibly, develop with discipline, and treat investor capital the way we treat our own.

Contact Bass Energy & Exploration | Call Us: 405- 832-1777

Final Thoughts

Oil and gas investing is not complicated once you understand the structure. Most problems in this space come from confusion, not complexity.

If you understand how ownership works, how wells are developed, and what responsible operations look like, you can decide whether this asset class belongs in your portfolio.

Education comes first. Good decisions follow from that.

Responsible Energy. Disciplined Development. Real Results.

Statement

The information provided in this article is for informational purposes only and should not be considered legal or tax advice. We are not licensed CPAs, and readers should consult a qualified CPA or tax professional to address their specific tax situations and ensure compliance with applicable laws.