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Gulf Coast Western Joint Ventures: A Review of Tax Advantages for Qualified Investors
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The oil and gas sector routinely garners rave reviews from savvy financial advisers whose clients are looking for smart strategies to grow their wealth. However, thinking outside the traditional stock market
The oil and gas sector routinely garners rave reviews from savvy financial advisers whose clients are looking for smart strategies to grow their wealth. However, thinking outside the traditional stock market investment box isn’t always easy. Granted, the intricacies of an unfamiliar market that can appear volatile at times may give newcomers pause. But according to Steve Ziemke, Executive Vice President of Dallas-based oil and gas exploration/venture capital firm Gulf Coast Western, while getting a firm foothold may be daunting at first, once investors learn their way around the terrain, the energy sector offers a wealth of opportunities for those willing to expand their horizons.
The bottom line? The bigger oil and gas picture encompasses not only potential profitable investment avenues but an abundance of tax strategies that go a long way to growing your bottom line.
In his role as EVP, Ziemke focuses on educating clients about alternative investment strategies. He believes adding oil and gas investments helps partners augment and complement their overall portfolios by providing a strategy that’s outside the stock market, which is where most assets are generally found.
What prospective oil and gas investors need to realize, Ziemke notes, is that they’ll be dipping their bucket in an entirely new well where different rules apply. In order for them to make informed buying decisions, Ziemke details the financial aspects of investing in oil and gas, explaining, “You get upfront tax deductions — based on success of the wells most of the potential returns come in the first five to seven years — and then the wells will taper over time, [so this] is a long-term investment. It’s not short-term like … selling stock.”
In the oil and gas industry, companies such as Gulf Coast Western solicit the sale of profit shares from clients who wish to partner with them on emerging projects. In this capacity, Gulf Coast Western identifies prospective drilling sites and conducts a thorough analysis of each for projected costs and yields. After a series of careful reviews, those sites deemed to have the highest potential for long-term profit are given the green light for production.
Next, a detailed prospectus covering both the pertinent research as well as the necessary context is made available to financially qualified investors. Once a sufficient number of qualified partners sign on, Gulf Coast Western purchases the sites on their behalf, and goes on to manage them from the engineering and construction phases through the day-to-day operations and maintenance of the working wells. Along the way, the staff of Gulf Coast Western is always available to answer questions and keep partners updated on the status of every project.
The IRS has a unique set of deductions specific to general partnerships. Granted, it’s not light reading, but once you’ve familiarized yourself with the possibilities for generous returns on investment, their significant advantages become clear — especially for high-dollar clients. When reviewing investment options, many qualified investors looking to diversify their wealth portfolios cite lucrative tax deductions as the key reason joint ventures were more appealing than many traditional channels.
One satisfied general partner who gave Gulf Coast Western a glowing Better Business Bureau review credited tax advantages as a major factor in his overall rating. “My wife and I became familiar with Gulf Coast Western through our CPA working to find tax strategies and qualifying investments to achieve tax goals. I was initially skeptical, having a traditional understanding of oil and gas investments,” he wrote. “However, I was able to attend a field trip … to see the operations firsthand. The visit and detailed explanation(s) … changed my skepticism to optimism. [Oil] and gas technology is truly amazing, providing better success for returns, investment security, and tax benefit.”
Perhaps the most tangible investor tax benefit pertaining to oil and gas production is the deduction for intangible drilling costs. During a recent episode of the popular financial podcast “Wealthability for CPAs,” host Tom Wheelwright and John Engel, Gulf Coast Western’s chief operating officer, discussed the topic in depth. While some investors might be skeptical about making something out of nothing, once they’ve got the pertinent facts, the profit potential comes clearly into focus. And, per Wheelwright, as long as such expenditures are made within a predetermined time frame, intangible drilling costs are basically 100% deductible — even before partners lay out a dime.
“So, intangible drilling costs are exactly that,” Engel explained. “It’s all the activities involved in drilling an oil well, placing an oil well into production, doing what needs to be done to place that well into production … Those are all of the intangibles, and it is by and far the most expensive part of drilling an oil well.
“If you’ve ever had the opportunity to go to an oil well … as they’re drilling them now, they literally come out and they build a small city around a bunch of holes in the ground. And they stay there until the wells are in production and then they move everything off. It’s a tremendous undertaking from the first bulldozer showing up and starting to clear the path. All of those things go into your intangible drilling costs. And as [a working interest participant] in an oil and gas project, you are … able to write off the majority of those costs in the year that those costs are incurred.”
While it’s true that general partnerships, such as those marketed by Gulf Coast Western, deliver an array of benefits that differ from those associated with putting money in stocks and bonds, as with all investments, they come with inherent risk factors that investors must take on. However, for those whose funding is substantial enough to afford general partnerships, Ziemke thinks the educated choice is clear. “Hey, if you’re buying stock in Exxon, that’s great, things are moving, you’re probably making good dividends,” he conceded. “But it’s not like drilling wells with Exxon.”
As another BBB reviewer who realized firsthand just how handsome his dividends might be with a general partnership wrote: “I am a new investor with Gulf Coast Western within the past year … I have found them to be incredibly honest and forthcoming with all the investment information to allow me to make a good informed decision. I had their investment packet thoroughly vetted with my accountant and other trusted men in the oil business and was advised that everything they are telling me is correct and honest. The income potential is very good, but the tax advantages will just seal the deal.”
A joint venture is a business arrangement where two or more parties agree to pool their resources for a specific project or business activity, sharing profits and risks.
Tax advantages refer to financial benefits that reduce the amount of tax owed, such as deductions, credits, or exemptions that can lower taxable income.
Intangible drilling costs are expenses incurred during the drilling of oil and gas wells that can be deducted from taxable income, often providing significant tax benefits to investors.
An oil and gas investment involves purchasing shares or interests in companies or projects that explore, extract, and produce oil and natural gas, aiming for financial returns.
A general partnership is a business structure where two or more individuals share ownership and management responsibilities, as well as profits and liabilities of the business.
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