As oil and natural gas supplies are declining, global demand is on the rise. The top eight oil-consuming countries alone consume over 80 million barrels of oil per day. Even with the rising popularity of alternative energy sources as a means to fuel our cars, oil cannot easily be replaced as it is used to manufacture virtually everything we use on a daily basis, from clothing and pharmaceuticals to detergents and insulation. There are thousands upon thousands of petroleum-based products that we rely on every day. Already at record-high prices, experts predict oil prices will soar even higher, reaching $200 per barrel in the not-so-distant future. All of this translates into opportunity for savvy investors.
Through direct participation programs in oil and gas, investors actually own a portion of the well and receive a share of the cash flow it generates via monthly disbursements, which investors can either enjoy as supplemental income or use to re-invest in additional projects or other vehicles. And, you continue to receive profits without leaving your principle invested as is the case with a stock investment. In addition to the high income potential, oil and gas investments offer substantial tax benefits, which the U.S. government has designed to encourage domestic drilling. Since the Tax Reform Act of 1986, direct participation programs in oil and gas are one of the few remaining investments that allow investors to shelter income, making it one of the most tax advantaged investments today. Investors can deduct as much as 65 to 100 percent of their investment within the first year, whether the well is successful or not, and 15 percent of your income is tax-free (see Tax Considerations).