Why You Should Consider Direct Participation over Other Forms of Investing in Oil Wells

[Posted on Apr 19, 2013 by Michael L. F. Slavin]

If you own stock, which is the most common investment strategy, you own a percentage of the company. In a direct participation program (DPP), the investors own a piece of the well, directly. Investing in oil wells through a DPP offers distinct advantages.

Basics of Direct Participation

The group or company that sets up a DPP is the managing partner of the joint venture. There are two types of partners in the DPP, “limited partners” or “general partners”, depending on the way the partnership is structured. This is one reason for the creation of DPPs; they allow small investors to participate in investing in oil wells, which at one time was closed to all but the wealthiest of individuals.

Advantages of Direct Participation over other Oil Well Investments

A direct participation program may have significant tax advantages. Other oil well investments generally involve buying stock in an oil production company. Stockholders deal only with the profits of a company (if any) and stock purchases are not tax deductible. In a joint venture, all costs (tangible and intangible) associated with developing, drilling, and completing a well are tax deductible. These deductions may offset active and passive income from other sources, reducing the investor’s overall tax liability. In addition, due to the small producer’s exemption allowance, 15% of the gross income from the well is tax free.

U.S. Emerald Energy

All investments involve risk, and often the most successful investor is the one that can best reduce risk. An experienced partner with a proven record is an invaluable asset, and U.S. Emerald Energy is such a partner. U.S. Emerald Energy cherry-picks their projects by comparing wells against each other. They also consider a deal only after the due-diligence is complete and the prospective well is ready to drill. The company focuses on “proved undeveloped” (PUD) formations and utilizes technology such as 3D seismic to further reduce the risks of oil and gas drilling. In the oil and gas industry, developmental PUD prospects have around an 80 percent success rate, but when combined with 3D seismic and multiple PUDs, this number can approach a 90% success rate or even higher.

With more than 20 years in the business, U.S. Emerald Energy has developed the tools and skills that make them the company to consider for those who decide that investing in oil wells through a direct participation program is a serious option for their portfolio.