WAYS TO INVEST:
1. The investor could buy common or preferred stock in a major oil company (Exxon, Shell, Pennzoil) and other fully integrated corporations. This is the least exciting type of investment, but the safest. There is no type of tax benefit.
2. Investor could buy into a large drilling program that usually has 50-150 wells that will be drilled in 2 years or so. This investment is fully regulated and may have hundreds of investors and depending on the amount you invest, could only amount to a fraction of interest to the whole program. Securities and Exchange Commision (SEC) regulates this type of investing and the investor has to be over 21 years of age, and have a net worth of more than $1,000,000 or $200,000 of income for the previous two years and current year. Investor normally has to prove that he has risk capital, not just discretionary funds, that he can well afford to lose.
3. The investor could invest in a small program of private funds that are not registered or regulated under the Securities Exchange Act of 1933 nor with a state securities agency. Private funds are not as stringent in their financial and tax status requirements. However, these non registered private funds do make a sincere effort to ascertain whether a potential subscriber can afford to lose his investment capital or can wait for an indefinite period of time before realizing a return on his money. Most private drilling programs have less than 35 investors and organized and operated like the large programs. Average numbers of wells in small private programs are one or three wells depending if it is a drilling or purchasing an existing producing well(s).
Unlike a large drilling fund that is regulated and where the initial investment for a unit of participation could exceed $30,000, the initial investment in a small private drilling or acquisition could be as little as $1,500.
When an oil or gas well recovers 100% of initial cost, it then returns pure profits after expenses every month to it's owner(s) until fully depleted.