oil and gas

[perinova]

I am repeating what I just heard on a youtube thingy and the subject is investment in oil and gas through a partnership.

I wouldn't know how to find those investments., but apparently 80pct of the initial investment is, for tax purposes, considered a loss on the W2.
This seems like a very good option to offset the tax implications of unwanted RMDs.
Thereafter it takes 5-7 years to recop the money.

I would have to read a lot more on this but, anyone has considered this?

 

[pjm-7]

Back when I was in the brokerage business in the 1980's there were oil and gas limited partnerships that would generate losses that passed through to the investor. The tax act of 1986 pretty much eliminated the advantages of these LLP's.
Even back then these were big red flags for the IRS. So many people have been caught up in these tax traps. Be prepared to pay back taxes, interest and penalties.

My opinion is to avoid these at all costs. The "potential" tax write-offs are not worth the hassles. I also avoid any so-called investment "advice" that is posted on youtube.

 

[Exchme]

My dad invested in some of these back in the 80's. The only trouble was that instead of 5-7 years to payout, the wells died in a few months and he lost his entire investment. In the 90's, a friend did the same thing, even after I told him about my dad's experience. Predictably, he got burned too.

Oil company geologists pore over the available data and if those pros think it's profitable, oil companies invest. LLPs are very expensive financing, so the prospects have been picked over by the technical experts and only the dregs are being offered to you. The General Partner doesn't care too much if your well fails, because they get to learn about the geology in the area, so they can use your money to better prospect for whatever value is in the region and then keep the valuable prospects for themselves.

It's a sucker's bet. Let someone else be the sucker.

 

[gcgang]

https://www.petroleumnews.com/pntruncate/968299281.shtml

Sometimes it works. Above is a link to an old article about the guy who helped get the Bakken going. He had an idea about a giant oil field, and finally found someone who thought it worth drilling. It mentions that times were so lean for the geologist that he considered working at the restaurant his neighbor owned.

The article doesn’t mention that the geologist had no funds of his own to participate in the drilling. His neighbor, the restaurant owner was a friend of mine. He invited me to a meeting about putting up funds for the geologist’s share, with the geologist keeping a percentage off the top.

People I knew in the oil industry warned me not to do it. However, one of the smartest guys I knew, my wife’s uncle, a self made multi millionaire with an eighth grade education, who had made oil investments in the past, amongst other ventures, asked who else was investing in it. Was it a bunch of doctors and other rich guys, or were there people who knew the oil business? Halliburton and Dick Cheney were putting up 25%, so I took 5% of the geologist’s 8% share.

That speculation is why I was able to retire early.

 

[wolf]

IMHO
Avoid limited partnerships. Because they are "limited", you have no say in how they
are managed.

Like previous posters, my Dad also got involved in "limited" parterships. Lost money.

 

[audreyh1]

I know people who got seriously burned by this in the 80s. One close lost their retirement savings - I think they were a sitting duck easily taken in. It was a very hot investment at the time until a huge number of people got fleeced.

 

[ncbill]

Oh, yeah, I "got sold" various forms of these, by brokers who get high commissions.

They do front-load expenses and you are a general partner usually for the first couple of years, so you can offset those expenses against your ordinary income.

So they might make sense for those making hundreds of thousands year after year in ordinary income, but probably not for those paying RMDs.

Actual returns are vastly over-inflated, so they should be viewed as a tax shelter, not an investment.

They are highly illiquid and you should assume you'll never be able to "cash out" but will instead have to ride it out to the dissolution of the partnership.

And you should plan on getting NOTHING back on liquidation, e.g. here's the exact language for one of mine that ended last year:

"...the partnership remains in a negative financial position and will have insufficient funds to cover the remaining deficit...

The Managing General Partner will absorb this shortfall and it will have no effect on investor partners."

 

[Montecfo]

Exchme has it right. I recall brokers calling to pitch these to me when I was a tax accountant working in the O&G industry. I was smart enough to avoid them then.

Great story from gcgang, but unless Dick Cheney is in, I would let it pass.

 

[aja8888]

If you are going to invest in a partnership, oil & gas or otherwise, it's best to be the General Partner and not a Limited one!

 

[ERD50]

I'm guessing these will generate K-1s as well? That's another tax complication, and delay until mid-March to get your taxes done.

That's a hard no for me. To each their own.

-ERD50

 

[SunGuy]

Great time to buy oil and LNG of all sorts, we will still be using it for the next 100+ years.

 

[Montecfo]

Great time to buy oil and LNG of all sorts, we will still be using it for the next 100+ years.

True. And lots of opportunities that do not require speculation.

 

[SunGuy]

Yeah, I am buying into a few low debt operators that are lower market caps, across all the sectors.

Really easy to see that the major markets are not yet ready for all electric cars, and car companies should be investing into better and more varied hybrids.

 

[BeachOrCity]

I bought into an oil partnership in September 2014. Remember what happened in October 2014? Sometimes you can’t do anything but laugh at your own timing.

While you don’t get the initial write of a high quality mlp can be a decent invetsmen where most income is tax deferred these days. Just don’t overpay and stick to quality. EPD is one. You have to deal with. K-1 each year.