Combination Drilling and Income
Oil and gas programs may involve a combination of all three types: exploratory, developmental, and production. A combination may allow the investor to achieve the tax deferrals from intangible and tangible drilling costs while a property is being developed and reap the benefits of production.
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Types of Oil and Gas Programs |
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Exploratory Programs |
Developmental Programs |
Income Programs |
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Characteristics |
• Locate properties (usually remote) likely to hold oil and gas • Cost of land and mineral rights are low; high exploration costs • Terminate prior to drilling • Benefits from tax deductions and sale of property rights |
• Locate properties near producing oil and gas wells • Cost of land and mineral rights high; cost of exploration low • Terminates prior to production phase • Benefits from tax deductions and sale of property rights |
• Purchase existing producing wells • Cost of land and mineral rights very high; exploration costs negligible • No specific termination date • Generates immediate income |
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Risks |
• Finding only “dry holes” • Changing environmental and other regulatory rules |
• Low production from step-out wells • Changing envi | |