2013 Oil Well Investment
Oil Partnerships -How they Work
Oil and gas partnerships are some of the most lucrative partnerships in the world. If one enters into the right partnership, the chances of earning a good profit as a result of the partnership are quite high. Statistics estimate that the world demand for oil and gas increased substantially in the last decade and continues to do so every year. Moreover, the current oil fields are yielding less oil; too little to completely satisfy the whole oil demand. As such, entering a successful oil partnership is something worth an investor’s time.
Before entering any partnership, one has to know the different types of oil partnerships available and how these partnerships work. One of the most common oil partnerships available is the limited oil partnership. This type of partnership involves more than two members in which one or more partners are considered the general partners while the rest of the partners are limited partners who have limited liability. The general partner has unlimited liability. The investment liability for the limited partner is generally the amount invested. This means that the limited partner risks no more than this should the investment fail.
In terms of limited oil partnerships, there are two types of such partnerships: developmental partnerships and the exploratory partnerships. An investor has to understand the two partnerships, how they work and more importantly the risks associated with the two before making a decision on which partnership to join.
The development oil partnership refers to a drilling process in which oil wells are only sunk in areas where oil reserves have been determined to exist. On the other hand, exploratory oil partnerships are with oil and gas companies that are sinking oil wells in areas in which geological surveys suggest that such oil reserves may exist.
When comparing the two types of limited oil partnerships, it is quite clear that the exploratory partnership carries more risk than the developmental method. However, it must be stated that both are still considered speculatory investments and only accredited investors may participate.
Another class of oil limited partnerships is the Master Limited Partnership, commonly referred to by its abbreviated term MLP. MLPs work through the production and processing of natural resources, in our case oil. Oil and gas MLPs are made up of both general partners and limited partners. MLPS pay their investors quarterly in terms of Quarterly Required Distributions.
MLPS are quite advantageous as oil partnerships mainly due to the high number of tax benefits gained from avoiding corporate tax income as well as limited partners being able to reduce their liability on tax forms. As such, MLPs have relatively cheap funding costs.
This has been more or less a general article on oil partnerships. If you are actually interested in investing in an oil partnership you should research the company you are investing with as well as learn more about this type of investment.