Investing in Working Interest

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Many of the clients that invest with us frequently ask us how they can reduce their tax bill in the oil and gas space. We decided to fly to Houston to meet with Tanner, an exploration geologist, to shake his hand, learn about his process, and test the waters with our own money. Working interest is when you invest directly in an oil or natural gas well. If the well produces, you will earn your proportionate share of the income minus expenses. The associated tax deductions make the opportunity very attractive on a risk-reward basis. Generally, each investor will be able to deduct about 75% of the total investment in the year the well is drilled. The remaining 25% of the investment can be deducted over a 7-year period. Essentially, the investment cost is entirely tax deductible. For successful wells, the rates of return can be 10, 20, 30 to 1…meaning you expect to earn multiples on your investment.