Investing your money allows you to beat inflation, attain financial goals, and prepare for retirement. If anyone is looking for where to invest, now is the perfect time to invest in oil and gas. The United States has reached that point at the moment where she could function without importing any more fuel. Today, we will dive into oil and gas investment and look into the tax codes that you need to fathom before investing and how to take advantage of it. Also, discover the reason you need to file a tax extension or deduction and the process of doing so.
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Have You Been Paying Attention?
Hopefully, your day is treating you terrific. Mine is treating me fantastic for numerous reasons. Number one, I’m thankful I’m breathing some fresh air. I am thankful I am alive. I am thankful for Easter Sunday. If you’re a Christian, probably most that are reading this blog are thankful for the resurrection of Jesus Christ because, without the resurrection, there is no Christianity. At 42 years old, a father of four, I’m maturing some. I’m always trying to figure out a way to tie my life into these lessons I teach my children and sometimes it’s hard lessons, but I always try to tie some scripture verses in there. The Bible to me is real and it’s going to be real as ever going to be on Easter Sunday.
One of the verses that define Easter is Matthew 28:5:6, “The angel said to the women, ‘Do not be afraid for I know that you are looking for Jesus who was crucified. He is not here. He has risen just as he said. Come and see the place where he lay.’” Hopefully, you will get to spend some time with your family and go to church. I encourage you to go to church and read the Bible. Spend some time with the Lord in prayer. As I get older, I know that it’s more important. Nowadays are a little bit more challenging raising kids. I don’t think it’s ever been easy, but there are many different things to worry about than they were when I was a kid and when my parents were kids. I rely on my friends. We always bounce things off of one another and rely on wisdom from God and instruction as well.
Tips To Beat Oil And Gas
Have you been paying attention to the news? Have you been paying attention to the economy and what is going on in the world? I am glad I’m not tied to a global economy. The price of oil per barrel has been hovering around $64, $65 which is a good price. I like that price when the price of oil per barrel is $65. $70 would be a little bit better for me. I know we’re paying a little bit more at the pump. Oil and gas are not going away anytime soon. Even though some of the radical elitist politicians who as they fly in their private jets giving these speeches about the bad industrial plants that produced some of these bad gases, which our country has done a great job of trying to reduce the carbons and reduce this. Petroleum is not going anywhere anytime soon.
Personally, I believe it is a good time to be in oil and gas and there are a couple of different ways to beat oil and gas. If you want to take advantage of the tax code, if you want to take advantage of what Ronald Reagan helped put a Tax Code to get an immediate tax deduction, IRS Section 263(c) 59(e) or IRS Section 611, 613 or 613(c)(6) or IRS Section 469(c)(3). All of those are vital to investing in oil and gas. If you’re investing cash and you want a tax deduction, it is amazing. Every week I talk with people about this, and it is new to most people and some people have said, “Why didn’t my CPA tell me about this? Why don’t I know about this deduction?”
First of all, I personally don’t put my money in oil and gas investments for the deduction. I do it for the return. The deduction is nice and there’s no doubt it helps, but it’s not the only reason I do it. Ronald Reagan put these laws on the books years ago. He was influential in Congress passing the laws in the ‘80s to encourage American independence of foreign oil. We have reached that point. America could function without importing any more oil in. We would be fine. What’s crazy is we’re still importing it and we’re now exporting it as well. We are all passing one another. There’s a difference between Brent Crude and West Texas Crude and all that. If you’re looking for a way to potentially receive a deduction in the same amount that you put your money in the same year. If you made an investment, you would get a deduction whenever you file your 2019 taxes, which you’ve got to file an extension.
If you’re investing in direct participation, oil and gas wells, you have to file an extension because whatever company you’ve invested with is going to try to capture to the penny as much as they can for the deduction. You won’t get those what they call IDCs or Intangible Drilling Costs. You won’t get those until probably August or September of 2020 for your 2019 taxes. You have to file a deduction. I’ve never filed a deduction until I started doing this a few years ago. If you want to learn how to take advantage of that, I make the introduction to the company and you get educated. There are all kinds of videos for you to watch.
The Recent Tax Law Changes In Oil And Gas
If you’re aware of another investment where you could put money in and potentially get a deduction for the amount you put in. For example, the minimum investment is $50,000. You could potentially get a $50,000 tax deduction. The law reads 85%, but President Trump made it a little bit sweeter. In the tax law changes in oil and gas, they did it where you could accelerate the depletion allowance now, which that was the other 15%. It depends on when the wells are drilled, but the potential is there to receive a 100% deduction. Worst case scenario, you’re talking probably 80% up to 85%. If for some reason you don’t need the immediate deduction, you can carry it forward to a few years.
Another cool caveat with this, you can carry it forward up to three years. The first 15% of income in oil wells is tax-free every year into perpetuity of the wells. There’s risk involved. Anytime you put a drill bit in the ground 5,000 feet deep, there’s a risk. We’ve been successful in drilling these wells. We like to drill the wells, get the tax deduction and get some income for several years. We want to prove the reserves and then sail the wells to another company. I’ve been part of two packages where we sold the entire package. When you look at the basis of the money contributed to the investment, one was an 18% return and one was a 20% return on the basis of what you put in. That does not include all the monthly income and the tax deduction. When you include those, those were a little bit north of 50% and this is real math. These are numbers.Get educated on what else is out there. Click To Tweet
I’m not saying every project is going to be like that, but the two that I’ve been a part of where we sold, that’s what they were. The next one we could get 10% back on our basis and when it’s all said and done, it could be a 35%, 40% return. It still wouldn’t be bad. Receiving a monthly income, this is a deal where you receive monthly income once the wells are drilled. There is a 90-day lag period from when oil was extracted from the ground to when you get paid for it. It is a 90-day period from when it’s taken out. You should receive a monthly income. The 25th of every month is revenue day and that’s when checks are passed out or direct deposited. Now is a great time to be in oil and gas. I don’t think you’re going to see these opportunities if you go directly to Wall Street. If you go to Wall Street and you won’t invest in oil and gas, you’re going to have to go through some Master Limited Partnerships or MLPs, which I do like those as well. Your gas is probably going to put you in some stocks or some mutual funds. There’s a way to participate in the oil and gas directly. I’m in it from an investor on that side.
How To Directly Participate
We own some land and I’ve been talking about it every show for the past episodes or so. My family owns some land in Ethel, Louisiana, which is right North of Zachary, beautiful East Feliciana Parish. We’ve had some companies reach out to us about leasing our land because they want to drill. They want to drill for wells. They want to drill for oil on our land. A couple on shot down because the price per acre they want to give us is a joke. What’s more important to me is the royalties. I understand from the investor side, but I also understand from the landowner side because we have leased our land before. In 2011, we leased our land to Devon Energy and then Devon sold the lease later on to Goodrich Petroleum and they never drilled. We got the bonus money. It was a check for a few years.
Goodrich Petroleum exercised the two-year option. We got another check and they never did the drill. There’s a lot of activity going on in East and West Feliciana Parish, even in Pointe Coupee Parish there’s a lot of activity going on, so as St. Helena. Even the Northern parts of East Baton Rouge Parish as well and Wilkinson and Amite Counties in Mississippi too. These are big oil companies that we’re talking with. They’re targeting the Austin Chalk formation and the main companies are EOG, Marathon and ConocoPhillips. Those three companies are publicly traded companies. Where do we get the money to do what we do? We have investors, we have another side which I’m going to get into, is putting your money up, lending your money to the company to go lease the land and that pays a consistent fixed interest rate.
We’re doing the same thing that the big guys are doing on a much smaller scale. I’ll make the connection with you and the company to go do some research on your own website. It’s about education, getting educated on what else is out there and how to get the deductions. You know my thing, what I do in the show every week, two of the only three strategies I have my own money in are tax-related. This one is a way to get a deduction. If you’re a high-income earner, I don’t know of anything better to get a deduction than an oil and gas investment. There are risks, but the risks are mitigated.
The technology for drilling wells has dramatically increased phenomenally in the last several years. That’s why America is now independent. Ronald Reagan didn’t get to see what he caused. The things that he did, the steps he took have caused this country to be independent of foreign oil if we choose to be. If some catastrophic event took place and this country starts going to war, we will be fine as far as producing oil. We can thank him. He had a vision and it took many years, but it’s come to fruition. There’s a way to participate in that and you’re not going to find it through your traditional financial guys.
This is a way to directly participate in oil and gas and to directly benefit from certain parts of the Tax Code, the Intangible Drilling Costs, IRS Section 263(c) 59(e) IRS Section 611, 613(c)(6). I encourage you to look these up and the Passive Activity, IRS Section 469(c)(3). We do have some wells in East Texas, but we’re mostly in the Permian Basin. We’re involved in the primary and secondary production, acquisition, development and exploration of oil and gas projects in Texas, Louisiana and Oklahoma. This company, the way I’ve been with these guys for a few years and the way they start has been cool. They’ve come to Baton Rouge before and this goes back to the education that you do because you’ve got to be patient a little bit. You don’t put your money up and all of a sudden start getting checks the next month. We have to drill and there are a lot of steps involved.
There are major tax benefits and the US government offers attractive tax incentives to encourage investment in domestic oil and gas projects, intangible drilling costs, which include items such as labor and water. Those typically about 60% to 80% of the cost of completing a well and can be 100% tax deductible during the first year. Show me another investment opportunity where that’s even a possibility. I know there are people in conservation easements and all that, but this is something a little bit different. There are a depletion allowance and the depletion allowances are a deduction from taxable income that reflects the declining production of reserves over time. Independent producers and royalty owners are permitted to take a 15% reduction to the taxable gross income of a productive well to account for the depletion of the reserves.
This results in 85% of income from oil and gas investments being taxable, which is subject to limits and restrictions. President Trump changed a few things were the Congress passed where you could potentially write off up to 100% the first year again, depending on when you put your money in and when the wells are drilled. It’s an exciting time to be in oil and gas. I’m a big fan. I don’t own any stocks in oil and gas, but I follow a couple of companies closely only because of their activity in East Feliciana Parish, again Marathon, ConocoPhillips and EOG. I’m interested in what those guys are doing around my family’s property up there. It’s not far behind the old location of the FS Williams Country Store with a big red boot on top of the store.With taxes, there are always legal means at your disposal to reduce what you owe. Click To Tweet
I can remember going there with my grandmother when I was a kid and I thought they liked her because she would get a bunch of stuff and she basically was signing a ticket. She had a little tab there. She paid the bill once a month. I can remember as a kid thinking, “They must really love mama old Day because we get all the stuff. We get it free. We walk out of the store.” That’s not how it works. My family, my grandparents were good friends up there with the Williams family who still own the store. The old location burned down several years ago and the new location is right there at the McManus Crossroads, Highway 10 and Highway 19. It’s a beautiful country up there. We have a bunch of pine trees in our property. We can sign a lease now, but it’s not the right thing yet. I’m waiting for some other things to happen.
There are some myths about being in oil and gas. One of the myths is US oil supplies have dried up. While some wells have run dry, there’s still an abundance of unextracted oil. In November 2016 the USGS reported the largest estimated of continuous oil they have ever assessed in the United States. The oil reserve that’s found in a portion of Texas’ Permian Basin contains an estimated twenty billion barrels of oil reserves. By drilling in proximity to previously producing wells, Homebound seeks to increase the probability of finding extractable oil. Moreover, by utilizing new technology, they create the potential to extract oil from wells that were previously thought to be non-commercially viable.
Myth number two is profits are only realized if oil prices are high. I can tell you this is factual because I’ve been in these oil investments when the price dropped to $30 a barrel. We still got checks. It’s just that they were a lot lower, obviously. In the oil business, market prices have always fluctuated. If structured appropriately, oil companies can provide attractive risk-adjusted returns while oil prices are low. We focused on controlling drilling and production costs resulting in previous projects maintaining profitability, even if oil projects fall $20 per barrel. We want oil prices to be higher than that, but if they did, even when oil prices went to $20 a barrel, we were still producing. We may have choked back some of the wells, but we were still producing and still getting monthly checks. I encourage you especially the high-income earners if you have cash lying around. Maybe some lazy money in a savings account and you’re looking for a place to put it.
There are risks involved, but the risks are mitigated. The fact that I have my own money there and some smart people around the city have their money there. The income is real every month and it’s cool to watch what goes on. This is something you have to be diversified and you may be in oil and gas and some mutual funds or you may work at Exxon. I have several ExxonMobil retirees. Being directly involved in an oil project in the way it works is cool and the technology. There are a ton of videos to watch in the website.
I’m trying to help you keep up with Sam out of your pockets because Uncle Sam is bad especially some of these radical elitist politicians want Uncle Sam to get richer. I have a problem with that. The country, our state, the local governments we have taken plenty of revenue in the form of taxes, but the people, we elect and do a terrible job of spending it. It baffles me why we can’t spend what we take in. Why do we have to spend more? If you’re looking for ways to reduce the burden that you owe Uncle Sam, your 2018 taxes can’t help you there or for 2019 you can take some steps. I encourage you to take a look at this, to get educated and to dig into IRS section 263(c) 59(e). Find out what that is all about and learn how to take advantage of the Tax Code on the books. It’s following the Tax Code.
My kids will be totally embarrassed if they’re reading this. I often sing in the truck and they’re like, “Dad, you cannot sing well at all.” My Ruston who was named after Ruston, Louisiana, I spent a few years of my life up there. I’ll start singing a song and I say, “Ruston, don’t I sound like him?” He was like, “Dad, a little bit.” The other three kids say, “No, dad, you sound nothing like whoever.” It crushes my soul. I keep doing it until that point. I like to embarrass my children, especially when they let me know that they’re embarrassed is when I turn it on. I say, “If you all would ignore me and let me know it’s not bothering you I wouldn’t embarrass you.” Especially when I have kids in the truck, I crank it up. When my kids have friends in the truck, I crank it up. Their friends laugh and they sing with me. My kids don’t. I’m trying to make it fun. I’m trying to have fun in life. My kids are going to have fun in life and I always say, “What are you going to do with your life? Be a productive tax paying citizen of the society.”
Simon Black’s Even Elizabeth Warren Is Maximizing Her Tax Deductions
Speaking of taxes, I’m going to read an article right here from Sovereign Man. I like to read articles from Simon Black and his article. The title is Even Elizabeth Warren is Maximizing Her Tax Deductions. She’s definitely caught lying Pocahontas senator from Massachusetts or somewhere up there. On September 11th, 1791, sixteen men disguised themselves as women and waited patiently in a forest outside of Pittsburgh, Pennsylvania for the local tax collector. The tax collector’s name was Robert Johnson and he was tasked with collecting the new Whiskey Tax that had been signed into law. This was early in US history. The constitution had only been ratified two years earlier and George Washington was barely into his first term as president. At the time, the US was drowning in debt. The American Revolution was terribly expensive, and the national debt amounted to more than $75 million, an extraordinary sum at the time. In order to pay for it, Treasury Secretary Alexander Hamilton convinced his colleagues to pass an excise tax on distilled spirits and the so-called Whiskey Tax became law in March of 1791.
Whiskey was second only to God in America in the late 1700s. It was a staple of everyday life. Used not only to kill brain cells but as medicine, disinfectant and even currency. Whiskey was something that people assumed would always have value. It was often used as a medium of exchange in trade. You could buy bread, livestock and even pay debts with whiskey. Farmers would frequently distill their excess grains into whiskey for extra cash. It was surprisingly vital to the early US economy. Taxing it proved extremely unpopular and violent insurrection quickly followed. It was only a few months after the Whiskey Tax became law that the tax collector, Robert Johnson, was ambushed outside of Pittsburgh. The sixteen assailants shaved his head, poured scalding tar on his skin and covered him with feathers. The deputy federal marshal who was ordered to serve arrest warrants on those same assailants refused to do so fearing for his own life. The insurrection quickly escalated, culminating in the US government sending 13,000 soldiers, most of whom had been drafted against their will to put down the rebellion.Only spend what you can take on. Click To Tweet
It was the first time in US history that the federal government would pass a highly unpopular tax due to its financial desperation and enforce it at gunpoint. That $75 million debt was considered a lot of money back then. In 2019 dollars, that was about $2 billion, roughly $500 worth of nowadays money for every man, woman and child in America at the time. To date, the national debt exceeds $22 trillion or more than $62,000 per person. Even as financially desperate as the government was in 1791, now the debt is over 100 times worse on a per capita basis. This makes hard taxes almost inevitable and that’s worth considering as you file your annual tax return. Almost every penny that you send the government in tax goes to either pay interest on the debt or towards completely insolvent programs like Social Security and Medicare, which the government estimate will run out of money in several years.
There are a few bucks left over for the military, but nearly all of the rest of the government is funded with more debt. That’s why the government had to borrow an additional $1 trillion on top of another $1 trillion. Even the Treasury Department expects that it will increase the national debt by several trillion dollars over the next few years. Benjamin Franklin famously quipped, “In this world, nothing can be said to be certain except death and taxes.” I would respectfully change that to higher taxes. The Bolsheviks that are rising to power in the land of the free want your money. The fiscal outlook is already far too dire and on top of that, they want to spend vast sums on their pet projects. They’re looking for every penny they can get their hands on and they’ve already proposed all sorts of initiatives, higher corporate taxes, new wealth taxes, and radically higher income taxes. Any rational individual ought to plan on this.
Even if you’re the type of person who agrees with their politics, I hope we can at least take an honest appraisal of the government’s track record. Maybe you think that the green new deal is the greatest idea in history. Enjoy that fantasy, but at least consider who you’re dealing with. After all, these are people who squandered $2 billion to build a website. It’s not that, either. Absurd, ridiculous wastes and pitiful execution are in every corner of government, big and small. According to Senator Rand Paul, for example, the National Institute of Health spent nearly $1 million of our money, your money, to study these sexual habits of quail that are high on cocaine. Another $2.5 million to study daydreaming. No matter where your beliefs align, it’s important to recognize that much of what they collect in tax revenue will be flushed down the toilet. That money will be put to much better use in your own pocket. Save it to invest in your own business or education, donate it to charity, set aside more money for your retirement given that Social Security trust funds will soon run dry.
With taxes, there are always legal means at your disposal to reduce what you owe. I can show you several ways to help you pay taxes. Even the Queen Bolshevik herself, Pocahontas Elizabeth Warren, maximized her retirement deduction contributing $55,000 to her solo 401(k). That saved Pocahontas money, but she’s got to pay higher taxes in the future. That’s my take on that. Are you up-to-date? Are you current with the Tax Code? I know people that have invested money in foreign accounts and if you do invest money, you’ve got to file the Foreign Bank Account Report, also known as the FBAR or the FinCEN 114, and that’s required for US citizens and residents who have foreign financial accounts that exceed $10,000.
Get educated. There are many things out there for people to know about and learn about. That’s where I spent a lot of my time reading. That’s why I go to bed sometimes at 9:00 and I wake up at 2:30. I’m old fashioned. I’ve been accused of having an old soul, which I don’t think is a bad thing. I like to go to bed early and wake up early. As my kids get older, it’s few and far between that we get to cook supper and eat as a family. When we do, we hold hands and we say grace. We thank the Lord for this food and for the day. I find some of what’s going down the wayside now as we live in a fast-paced society.
I encourage you to stay educated, stay in touch with the current tax code. These politicians who want to steal from us, who want to overtax us, they’re the ones who created this. All these reports to the IRS Tax Code had to get passed by Congress. These guys, these men and women up there, these elite politicians who think they are better than us, they liked to make rules and laws that we have to live by. Yet they don’t live by them because they have loopholes. Go back and look up why the 401(k) was created. The 401(k) was created for politicians and executives when the tax code was high. That’s why the 401(k) is not the best place to put money. No matter what you’re in, the 401(k) was invented. If you go to Google or a search engine and look up when the 401(k) was started. The guys who invented the 401(k), it was the loopholes for executives and high-income earners to get around paying some taxes. That’s when the tax brackets were higher than what they are now. They’re lower. Think about it. 401(k) was invented. You put money in. You avoid paying the tax right now when taxes are high so in retirement, you’re going to be in a lower tax bracket, but it’s the opposite now. Those have shifted.
That’s why I encourage people to pay attention to what you’re doing. If you are contributing, if you’re working for a company where they match what you put into a 401(k). If you’re contributing over the match for the 401(k) and you’re open-minded, call me. I’m going to show you where. If you’re already missing, if you’re already used to not seeing that money anyway, you can definitely reduce to the minimum amount what you are contributing to your 401(k). Take that extra and put it in another account that’s similar to a Roth IRA.
The 401(k) is the worst place to put money. It does not matter what mutual funds or what you’re going in, bonds or stocks. It’s a terrible place but money because we are in some of the lowest tax brackets ever in our country’s history. I ask you why you would want to continue putting money in a vehicle, the 401(k), the traditional IRA or the Solo 401(k). Why would you want to kick the can down the road on paying the taxes when we’re in the lowest tax bracket now? It goes back to this, paying the taxes on the harvest of the seed. I know it is a juvenile example, but it makes a point. If you go to the local feed store, the coop store and you want to go buy some seed to plant a garden, corn, some okra, some cucumbers and you have the option. When you walk out at the cashier and they say, “Mr. Day, do you want to pay the taxes now on the seed or do you want to pay the taxes when all your cucumbers are harvested?”Money will be put to a much better use in your own pocket. Click To Tweet
I’m no genius and I have never been accused of being a genius, but I will pay the taxes on the seed because I have faith in what I’m going to put the money in. I have faith in my cucumber growing skills and I’m going to have an abundance of harvest. Therefore, the tax will be much higher on the harvest. That’s the point. It’s that easy to understand. When I sit down with someone and I ask them, “Do you believe taxes are going to be higher or lower in the future?” Every person I’ve ever sat down with, everyone has answered they’re going to be higher. I’ll say, “Why do you think that?” Most of them say because of all the debt and the out of control spending from the government so taxes are going to be higher. Why do you continue to put money in the 401(k)? When you pull the money out, you’re going to be in a higher tax bracket. Sometimes they’ll say the myth is that will because I’ll be in a lower tax bracket when I retire. If someone’s giving you financial advice and telling you that you will be in a lower tax bracket when you retire, see if they’ll sign, date it and put it on their letterhead. You can hold them accountable for that.
We don’t know that. I don’t know if the taxes are going to be higher, but I believe it. I’m looking at our country’s history. I’m looking at the total irresponsibility of the government, the elitists, the politicians that we keep electing on raising taxes. Imagine if we had a politician that could run on, “I’m going to lower your taxes. We’re going to shrink the size of government.” That’s something I could get behind. I want the government involved in my life as little as possible. I don’t want them involved in my life a whole lot. I understand we do owe taxes. I understand that and I pay my taxes, but it’s out of control spinning. The perfect example is in this article I read. The National Institute of Health spent nearly $1 million of our money to study the sexual habits of quail that are high on cocaine.
The person who wanted to fund this project and the Congress who allowed this, I’d like to take the gloves off and go in the ring with them. That’s insane. It is lunacy to do that. Do you know why? It’s not their money so they don’t care. I’m trying to educate you on the show on ways to keep the government out of your pockets. There’s a way that’s similar to a Roth IRA. If you have a large sum of money, you can transfer that every year to this strategy. It’s tax-free income down the road. It’s not an annuity. It’s not a fake phantom annuity. Be very aware of the annuities. I’ve only seen a few that are good. That’s a good analogy I came up with. Annuities are like politicians. There’s only a handful, less than five that are worth something. Be aware of what you’re doing when you’re locking your money for that. I believe in being liquid and having access to my money. There’s a strategy that is not an annuity. There’s a strategy where you can get in and the money’s tax-free down the road. You don’t even put the income on 1040, therefore not making yourself security taxable. It’s also what I’m doing with my own money.
One More Way To Invest In Oil And Gas
Getting back to the oil and gas thing, I thought I did a good job on the first segment of this show. I did a good job talking about oil and gas. You can go to the website SageMoneyRadio.com. I have previous shows on there. You can also download the iHeartRadio app. It’s free to your phone and you can type in Sage Money Radio and the podcasts are up there too. We talked about ways to ways to take advantage of the tax code, investing in oil and gas. There’s another way to invest in oil and gas. There are no tax benefits for this. Before the oil wells are ever drilled, we have to go lease the land. I’m doing it with our property in Ethel, Louisiana. My grandfather bought 401 acres in the mid-1960s and he was in the thoroughbred race horsing business. I grew up going to the track in Lafayette, New Orleans as a kid, watching my grandfather’s horses race. It’s lots of fun. He bought 401 acres in Ethel and that’s where the horses trained. That’s where he had them. It was a beautiful site as a kid to go through and see these thoroughbreds racing around his pond.
We still have the land. It’s in our family. We do a little hunting up there. Some pine trees on it. We’re looking at leasing the land. Say we leased to ConocoPhillips, that’s where I think we’re going to lease it to. Before they could ever drill wells for oil, what would have to happen? They have to lease the land from us. Where do they get the money to lease the land? From shareholders. ConocoPhillips is a publicly traded company. They’re getting the money from shareholders. The oil and gas company I worked for were private. We were a big company, but we’re small in comparison to Marathon and ConocoPhillips. Where do we get money to pay landowners to lease the land? We get it from what used to be called the land bank. We get it from investors, from lenders. They pay the lenders, you. It’s a one, two or three-year option. If it’s cash and you want monthly, this is a phenomenal way to get to earn interest and not decrease your basis, not decrease the principal.
If you lock your money up for one year, it’s 8%. If you lock your money for two years, 8.5% for three years it’s 9%. That’s not a home run investment, but it’s solid. That’s monthly income. You’re looking for monthly income. You could lock your money up for three years and earn 9% per year paid to you every month. For example, let’s say you have a $100,000 and you lock your money up for three years, that’s $27,000 you’re going to earn over three years, about 36 months. That’s roughly $750 a month. At the end of the three years, you get your basis back then $100,000. If you have some lazy money, some 401(k)s or you have a couple of different small IRAs you can combine. The minimum investment is $50,000, you can combine. You can compound this money, one, two and three-year options.
If you don’t need monthly cashflow, you compound it. The one-year return is 8.3%, the two years is 9.23%. The three years is 10.28%. You’d lock your money up for three years. Let’s say it is $100,000, after three years, after 36 months, that’s $30,864. Show me another investment where you get told exactly to the penny how much you’re going to make. This is a way. The oil and gas, that’s cash in the wells. We can’t tell you that because we don’t know. There are some variables there. Number one, are we going to hit oil? Number two, what’s the price of oil per barrel? Number three, how many barrels per day are being drilled or how many barrels per day are we gathering, extracting from the ground? That’s why there are some phenomenal and terrific tax benefits for doing that.
If you’re looking for more of a consistent income, a fixed rate of return, this is the way to go. $150,000 over three years in simple interest is going to pay you $40,500. That’s roughly $1,125 a month if you lock up $150,000 for three years. Where if you don’t need that $150,000 maybe it’s in a 401(k) or IRA, you’re going to make $46,296 over three years. The compounding works like a CD. At the end of the one, two or three-year term, you get your basis back and your interest payment. It’s simple interest. You’re getting monthly income every month.
This is a business loan secured by pari passu security interest in the project loan documents perfected the UCC financing statement in favor of each lender. Perfected liens are created when the lender father UCC financing statement with the appropriate authority, commonly the office of the Secretary of the State. This statement specifies the collateral you used to secure the loan and give the lender precedents in the collection process if the borrower defaults. Unperfected liens leave lenders open to the possible claims against the collateral by other creditors.
The project loan will be secured by liens against real and personal property of the sponsors. All that is some legal verbiage, some vernacular letting you know there’s risk involved. There are a lot of smart people around Baton Rouge. They went to our headquarters in Dallas. They’ve looked at the financials and made a solid educated decision before doing this. I’ve had some people that have requested their money back or getting to renew their loan and you give a 90-day notice before that and they get their basis back. It’s not hard to understand. It’s easy math. There are no tax advantages on this part, on the fixed interest rate. The tax advantages come on the direct oil and gas participation. I encourage you if you’re tired of hearing stocks, bonds, annuities, CDs, real estate and REITs, get educated. Call me 202-SAGE. It’s 202-7243. Go to the website, SageMoneyRadio.com. Send me an email from there. God bless you. God bless the USA.
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