oil and gas fund formation

The oil and gas business is critical to the global economy and is the world's principal fuel supply. If you are interested in setting up a hedge fund that wants to invest in oil and gas, there are several ways you can go about it.

1. Oil and Gas Limited Partnerships

This opportunity offers investors the chance to participate in tax benefits and the cash flow of an oil and gas venture. The General Partner is the organizer of the oil and gas opportunity and oversees the limited partnership on behalf of all partners. They are in charge of the actual drilling and production. 

If everything goes "as planned", and they find oil, then investors' will start generating monthly income. In the "worst case scenario" of a dry hole, they can deduct the majority of the investment from their income taxes. A "working interest" in the well, which is typically a portion of actual ownership, is owned by investors. They split the profits in proportion to their investment and contribute to any potential future costs. 

Since oil partnership opportunities are not publicly traded, you will need to perform extensive due diligence on the sponsor of the oil and gas partnership to ensure that you are not investing in a scam. 

The SEC’s Office of Investor Education and Advocacy has published a guide to help navigate potential investors considering investing in an oil and gas opportunity. 

2. Master Limited Partnerships

Master Limited Partnerships or MLPs are limited partnerships that are publicly traded on major stock exchanges. Most MLPs have a general partner and a large number of investors called limited partners. 

Like the oil and gas limited partnership, the general partners oversee day-to-day operations, while the limited partners buy MLP shares and supply capital in exchange for cash dividends from the entity's operations.

MLPs are pass-through entities which avoid paying corporate taxes. The dividends to MLP investors are passed through to the investors. A major benefit is that the majority of MLPs are traded on major stock exchanges which are frequently more liquid than conventional partnerships.

There are two types of MLPs. Exploration & production MLPs and Pipeline MLPs. Exploration and production MLPs engage in the exploration, development, and production of crude oil and natural gas. While Pipeline MLPs operate pipelines that transport crude oil, natural gas, and refined products.  

3. Oil and Gas Stocks

Oil and gas or energy sector stocks are a great way to invest in the oil and gas market. Most oil companies are household names and have proven themselves to weather the markets for decades. 

Energy sector stocks primarily focus on production and supply of energy products to the world’s economy. Like MLPs, energy stocks can specialize in oil exploration, pipelines, oil field services, and refineries. So, investing in oil and gas stock is my favorite way of investing in the energy market. Now here some top energy stocks: ExxonMobil, Chevron, ConocoPhillips. Rising oil and natural gas prices make it an excellent time to examine energy stocks, as countries are in constant demand for sustainable energy.

Contact us to learn more about starting an oil and gas fund.