The oil and gas industry are some of the largest, most lucrative industries throughout the globe. From the United States to China, every country on planet Earth needs these precious resources to survive.
Whether oil and gas are heating people’s homes or making it easy for them to get to work, or supplying the needed fuel for manufacturing processes, it’s clear that they are widely used and here to stay for the time being. Even as alternative energy gains popularity, “clean” ways to extract oil and gas are emerging, making them a solid competitor to “green” energy. At the same time, countries like China and India are using more oil and gas than ever to ensure that they can keep up with the world’s other major players.
The Profitability of the Oil and Gas Industry
Oil and gas companies make hundreds of billions of dollars per year. Though green energy has been making a big splash in the media, oil and gas companies are more profitable than ever before.
If you find the right oil and gas companies to invest in, you could be bringing in huge returns for your portfolio. Just check out these top oil and gas companies:
- Sinopec (China), which made more than $377 billion in 2018
- Exxon Mobil (United States), which made more than $241 billion in 2018
How Oil and Gas Companies Make Money
To make so much money, these companies focus on three key areas:
- Upstream: This is also known as exploration and production, or E&P, and involves seeking out underground and underwater crude oil and natural gas fields, as well as drilling exploration wells and drilling into established wells in hopes of finding oil and gas.
- Midstream: This is the transporting, processing, and storing of oil and gas, and transportation may involve pipelines, tanker ships, and trucking fleets.
- Downstream: This is the filtering of the raw materials discovered while upstreaming, and, in this case, refers to purifying natural gas and refining crude oil. It also includes marketing and distributing products like gasoline, lubricants, heating oil, petrol, and natural gas to customers.
Determining what exactly the oil and gas company that you want to invest in does prior to adding them to your investment portfolio is important. After all, some companies are innovating when it comes to fracking and deep-sea drilling, while others may be drilling in areas with a lot of chaos and tumultuous news happening. You want to keep your eye on the news to figure out where your money is going to go further.
How to Get Involved with Oil and Gas Investing
Now that you know why it’s a good idea to invest, you need to figure out exactly how you’re going to get in on this market. Gas and oil investing involve investing in:
- Oil and gas exchange-traded funds (EFTs) and mutual funds
- Shares of public companies on the stock market
- American Depositary Receipts (ADRs) of public companies
- Percentages of private companies
- Futures contracts
The Tax Advantages of Gas and Oil Investing
As an oil and gas investor, you’ll receive a variety of tax benefits. The government gives tax advantages to gas and oil investors because domestic energy production keeps industries moving and life going forward, making it a big national priority. It’s also risky to invest in oil and the buy-in is high, so the government incentivizes it.
The various tax advantages you’ll experience after investing include:
- 100% deduction for the year intangible drilling costs were incurred. These costs include grease, labor, chemicals, and other intangible costs, but not the drilling equipment itself.
- 100% of tangible drilling costs, which must be depreciated over seven years
- 100% of all net losses, which are considered active income, that are incurred in concurrence with well-head production and could be offset against other income like interest, wages, and capital gains.
- 15% of all gross income from oil and gas wells for small producer investors
- 100% of all excess intangible drilling costs that have been exempted as a preference item on an alternative minimum tax return
- 100% of all lease costs, which have to be capitalized and deducted over the course of the lease via the depletion allowance
When you file your tax return, be prepared to win big with your tax breaks. Just make sure you find a qualified accountant who knows how to take the correct gas and oil investing deductions.
Getting Started with Gas and Oil Investing
You know you want to pursue gas and oil investing, so what can you do?
It’s important to research all the different ways you can begin investing, from EFTs to future contracts and shares of public companies’ stocks. You also need to follow the news on the oil and gas industry on reliable websites like MSNBC and MarketWatch. Put alerts in your phone or email so you can see the latest updates on price movement of oil and gas company stocks as well.
If you don’t want to go through the effort of checking multiple news sites per day and looking for expert advice, you can learn more about gas and oil investing with valuable tips from Energy Advantage Investor. You’ll receive frequent updates right in your inbox that will guide on the best gas and oil companies to invest in.
What are you waiting for? Sign up for the Energy Advantage Investor today, begin learning about the industries and start making huge returns for your portfolio as well as big tax breaks.