Monthly Archives: October 2011

What is Direct Participation in Oil and Gas? by Swan Energy

Direct participation in oil and gas is not about buying stock options in gas and oil organizations or investing in general public businesses

Direct participation in the industry means that a trader or participant places their money into an endeavor which is going to get out there and drill a specific number of wells (these projects may include more than one wells) with the intent of these wells generating oil and/or gas that will then deliver income back to the investor.

This illustration by Swan Energy shows how direct participation in oil and gas works:

Direct Participation in Oil and Gas explained by Swan Energy

The income out of the manufacturing goes back to the enterprise and spread out to the participants proportionate to their Working Interest (minus taxes, charges, running cost, etc.).

Working interest is the term for primary liable portion of the ongoing expense associated with research, drilling and processing. Working interest owners furthermore completely engage in the earnings of any prosperous oil or gas wells.

An oil well at dawn

It is essential to take note that when anybody looks at taking part in a working interest endeavor they need to additionally be certain that the enterprise has a turnkey agreement so that they recognize what their charges is going to be up front.

These beforehand costs generally consist of research, drilling and assessment. Presently there may also be supplemental opportunities that will change from well project to well project. Fracking, pump jacks, and storage tanks are typical illustrations of typical additional expenses that are allotted to the participants. Make sure that you comprehend the financial requirement before getting engaged in a Joint Venture.

The notion of developing relationships or Joint Ventures to develop company connections has been all around for centuries. There are numerous distinct kinds of entities for direct participation in gas and oil undertakings; the most typical are Limited Liability Partnerships and Joint Ventures. A video presentation contrasting Limited Liability Partnerships and Joint Ventures in relation to direct participation in gas and oil undertakings may be found at Swan Energy’s web page.

If the endeavor is a Joint Venture (the entity that Swan Energy employs), there are two main functions that are important to understand. The very first role is the investor or participant. The participant puts up cash in return for Working Interest in the venture.

The next role is the managing venturer. The managing venturer runs the daily operations of the endeavor which might consist of, but is not limited to, developing the endeavor, managing the drilling and operations of each and every well, holding conference calls, dealing with any concerns that might come up, and controlling the financial aspect of the enterprise including obligations on oil and gas income back to the contributors based on profits which can be obtained from the production of each and every well.

In a Joint Venture, the participants have the command and make the judgements of Joint Venture. The Managing Venturer then implements these choices. In fact, the participants can substitute the Managing Venture with a simple majority vote

To illustrate, the contributors have the control to decide whether to cap a well or go to completion on a well. A lot of investors like this sort of oversight and control with their investments.

With any direct participation in oil and gas ventures comes risk. There’s constantly the chance that as soon as a well is drilled and tested that there’s no gas or oil found.

Swan Energy uses the Joint Venture structure to satisfy the targets of the participants in our programs to:

  1. Supply cash distributions from operations
  2. Provide increased tax benefits
  3. Place control of the operations and management of the oil and gas program in the hands of the participants.

With oil extraction costs between $8 to $10 per barrel and each barrel selling north of $80, Swan Energy thinks that it doesn’t take an engineer to figure out that the oil market is positioned to see high profits that may be made at the original source for unbiased investors by participating in oil wells directly.


Posted by on October 25, 2011 in Oil and Gas Production


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