Income Programs
An income program involves the purchase of producing wells in proven areas. The costs of property and assignment of mineral rights are high. Intangible drilling costs are next to nothing, and tangible drilling costs are low or nonexistent.
Tax benefits of income programs are mainly limited to an oil depletion allowance and depletion related to leasehold costs. The greatest risk involving this type of oil and gas program is that the well could dry up sooner than expected or the market price of oil could plummet. Investors must estimate the program’s future reserves, the price of oil and gas, and test various levels of inflation. Technological advances may enhance and reduce the costs of recovery. On the other hand, an income program will generate immediate income.
Income programs may sometimes allow a portion of the revenue stream to be reinvested, rather than distributed to investors. Reinvestment is generally permitted to protect or enhance the value of the property already