Three Reasons to Invest in a Private Oil Company that is Going Public

A better combination of upside returns, along with tax write-offs, liquidity, and a recognized exit strategy is possible when investing with smaller independent private oil companies who have an eye of going public.

First, the main reason why any accredited investor should invest in oil & gas investment programs is because he has a gross income for tax purposes greater than $200,000 per year, and typically wants and needs tax relief. This is still possible when investing in private oil companies engaged in legitimate drilling programs in the US. Its normally possible to write-off 85% of the Intangible Drilling Costs (IDC) in the first year of an investor’s investment. This can involve a big reduction of his gross income for tax purposes, and it often makes it possible for tax preparers to adjust the taxable income, and marginal tax rate for the investor while substantially lowering the taxes an investor has to pay.

Second, when any company goes public in the US, a number of doors are opened that were previously closed to all small independent oil & gas companies who must adhere to the federal exemption rules associated with Reg 506-D private placement offerings. Marketing, and advertizing are permitted with a public company doing public offerings but not with private offerings. Investment bankers, market makers, stock brokerage firms, and stock brokers as well as private investment firms, boutiques, and hedge funds can now legally invest in a public oil & gas company. This is a huge advantage for a successful smaller oil & gas company with a good business plan, and experience at operating oil & gas properties, and which is involved in successful development operations.

Three, the liquidity associated with registered, and freely trading shares of stock cannot be overestimated. The investor can invest with a private company to take advantage of the tax write-offs, and be able to sell his share of stock at advantageous times during the companies growth curve. This is a real plus when investors want upside, and still need assurances of liquidity when they need it.

Call me with questions about the strategy of investing in a private independent oil & gas company going public.