Direct Participation in Oil and Gas: How Private Placement Works

Direct Participation in Oil and Gas: How Private Placement Works

A Direct Participation Program (DPP) lets investors put capital directly into an oil and gas drilling operation rather than buying shares of a publicly traded company. You are not buying stock. You are buying a working interest in actual wells that produce actual oil and gas. The tax benefits, revenue, and risks flow directly to you.

What Is a Private Placement?

Private placements are securities offerings exempt from full SEC registration, typically filed under Regulation D (Rule 506(b) or 506(c)). This exemption allows operators like BassEXP to raise capital from qualified investors without the cost and delay of a public offering. Each investor receives a Private Placement Memorandum (PPM) that details the project geology, well plan, cost structure, risk factors, and projected returns.

What You Own as an Investor

When you participate in a BassEXP program, you receive a working interest in the wells drilled under that program. A working interest means you share in production revenue and bear a proportional share of operating expenses. You are an owner of the well, not a lender or shareholder. This ownership structure is what unlocks the tax benefits under IRC Section 469: your IDC deductions can offset active income because a working interest is not classified as a passive activity.

How Revenue Flows

Once wells are completed and producing, oil and gas are sold at market prices. Revenue is distributed monthly to investors based on their working interest percentage, minus lease operating expenses (LOE) and any applicable royalties. BassEXP provides monthly production reports so you can track volumes, prices, and net revenue for each well in your program.

How BassEXP Structures Its Programs

BassEXP operates as both the sponsor and the operator. We identify the prospect, acquire the lease, design the well plan, hire the drilling contractor, and manage the well through its producing life. Investors participate through a program-specific LLC. Each program targets a defined set of wells in Oklahoma's Mid-Continent region, primarily in proven formations like the Hunton, Wilcox, and Misener. We do the work. You own a piece of the production.

Direct participation is not for everyone. These are illiquid investments with real geological and commodity price risk. But for qualified investors looking for tax-advantaged exposure to physical oil and gas production, a private placement through an active operator is the most direct path available.