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Oil & Gas Fund
Hypothetical Illustration

Compounded Returns​

One of the compelling aspects of oil and gas programs is the potential speed at which returns are received through a combination of current year intangible drilling cost deduction and potential ongoing cash flows.  This allows for reinvestment in other programs that may compound returns.

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The chart below compares:

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✔  Investor A -  Invested in the hypothetical oil and gas fund.  Their initial tax savings from the oil and gas deduction

     and annual after-tax cash flow from operations compound at the assumed annual growth rate.

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✔  Investor B - Has not investmened in the oil and gas and grown their initial after-tax capital at the same assumed

     compounded annual rate.  Investor B has permanently lost a portion of their initial capital to taxes and begins with

     the net after tax amount.

Understanding Potential Benefits

 

✔ Intangible Drilling Cost Deduction - In the year of investment, general partners are allocated their share of intangible drilling costs which reflect startup costs for a portfolio of oil and gas wells. These deductions may offset any type of income and reduce income tax liability. The IDC Tax Savings highlighted in the chart reflects the Schedule E Business Loss deduction multiplied by the year of investment marginal tax rate.

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✔ Potential Cash Flow - The illustration also assumes the diversified portfolio of oil and gas wells provide cash flow over a 10-year period equal to 1.5 x the initial investment. Oil wells typically output heaviest flows in the initial 3-5 years with 15% of income tax free from depletion allowance.

The following illustration is for hypothetical purposes only and do not reflect investment in any specific program or strategy.  Investments in private placement offerings are illiquid, contain significant risk of capital and have no guarantees regarding tax benefits, cash flows or total return.  Projections of tax benefits and cash flows reflect one potential scenario that may not resemble actual performance results.

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Hypothetical Scenario  - Oil and Gas Fund Investment

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​Please enter the hypothetical investment amount below:

You may enter tax rates below that reflect the top federal and state marginal tax brackets  as well as net investment income tax bracket if applicable.  The higher the year of investment tax rates, the higher the impact and initial return from intangible drilling cost deduction tax savings.

 

In years 1-10 as cash flow may be received, it does create taxable income.  For many though, the tax bracket in the year of investment is higher because of current income or isolated events that may have artificially inflated that year.  Future years may have lower tax brackets from reduced income or retirement.  This will benefit return on investment.

Gross Benefit  ROI  IRR

Conclusion​

An individual in this hypothetical illustration would be better off investing in the oil and gas fund than keeping the same initial amount and permanently losing a significant percentage to taxes.  The compounded return from tax savings, potential cash flows and compounded growth of the oil and gas program should exceed the returns from the standalone net after tax investment.

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© 2025 Alternative Wealth Management, LLC

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All securities offered through Patrick Capital Markets, LLC Member FINRA / SIPC.  Investors should review any transaction and the various tax deferred and tax exclusion strategies and structures available with their tax and legal advisors.  Alternative Wealth Management does not provide tax or legal advice to individual investors.

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The information provided in this website is for educational purposes only and does not represent an offer to purchase, acquire or engage in any transactions.  Securities discussed above would only be purchased through Private Placement Memorandum.  Securities and strategies discussed herein may be speculative and entail a high degree of risk.  Investments in Private Placements are suitable only for investors who have adequate means of providing for current needs and personal contingencies, can bear the economic risk of the investment, and have no need for liquidity.

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The following is a brief overview of some of the risks that Alternative Wealth Management deems appropriate to highlight.  It is not and is not intended to be, a summary of all the risks associated with the strategies and securities discussed herein.

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Delaware Statutory Trusts (DSTs) - DSTs are regulation D private placements that offer fractional ownership of real estate.  Investors should understand the risk factors of participating in such investments as outlined in this section in addition to the private placement memorandum; in particular real estate risks, liquidity risk, change of tax status among others.

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​Real Estate Risks – Real estate risks include those of specific property issues, the economy of the geographic locations, environmental hazards, the risk of loss of tenant and other factors typically associated with a real estate investment.

 

​Change of Tax Status - IRS tax rule changes may alter or eliminate certain benefits related to current strategies.

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Performance Expectations – There is no guarantee that the investment and tax strategies discussed will elicit the optimal results.  Each taxpayer is unique.  Past performance or the results of other individuals is never an assurance of future results.

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Reduction or Elimination of Cash Flow – Investments in real estate may experience temporary or permanent disruption of cash available for distributions, such as, from a reduction in tenant payments or if the property sustains substantial damage.

 

Potential for Property Value Loss - All real estate investments have the potential to lose value during the life of the investments.

 

Impact of Fees/Expenses – There may be substantial fees paid to Sponsors, affiliates, and others, related to the strategies and securities discussed herein and such fees typically are paid regardless of the performance of the investment or strategy you seek.    Such fees and costs may impact investor returns and may outweigh any anticipated tax benefits.

 

Liquidity Risk – Private Placements are il-liquid with no secondary market.  You should consider these long-term investments regardless of your circumstances.

 

Sponsor Risk – There are substantial conflicts of interest between investors and the self-interest of the Sponsor, Master Tenant, affiliate companies and others who will profit from the private placement for their services regardless of their results.  Their decisions related to the offering and operation of the private placement is critical to the success of the private placement and the return of your investment.  The offering sponsor could take actions that might not be in the best interests of the shareholders of the private placement.  Those types of conflicts of interest could influence the decisions in the management and operation of the private placement that are contrary to the best interests of the Investors.  Investors will have no control over their decisions.

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