Oil exploration and production investments can provide significant tax advantages under current U.S. law. While each investor’s situation is unique, many expenses tied to drilling and production qualify for favorable deductions and depreciation treatment. Please consult with a qualified tax advisor before making any investment decisions.

Key Tax Advantages:

• Intangible Drilling Costs (IDC): Typically 70–80% of drilling and testing costs; fully deductible in the year incurred, or may be amortized.
• Intangible Completion Costs (ICC): Fully deductible in the year costs are incurred.
• Lease & Well Equipment Depreciation (L&W): Costs of oil well equipment are depreciated over 5–7 years, depending on the type of equipment.
• Organizational Costs: Legal and professional fees to establish operations may be amortized over 5 years.
• Prospect Costs: Can be depleted and amortized over 24 months.
• Syndication Costs: Must be capitalized and may only be deducted as a capital loss if the investment terminates.
• Lease Operating Expenses: Once a well is producing oil, ongoing operating expenses are 100% deductible against production revenue.
• Depletion Allowance: Generally, 15% of gross income from an oil well can be excluded from taxable income, subject to IRS rules.
• Net Revenue from Producing Wells: Treated as operating income (Schedule C) rather than passive income, and subject to self-employment tax (currently 15.3%).

Important Note: Tax laws are subject to change, and certain rules may limit the use of these deductions. This information is provided for educational purposes only and is not intended to avoid tax penalties. All investors should seek guidance from an independent tax professional experienced in oil taxation before investing.