Mineral rights and ownership are some of the great reasons for the global energy dominance of the United States. Investing in oil and gas is one of the greatest tax advantages still available. This is an early release for our e-book from Energy News Beat, Sandstone Group, and Pecos Operating. Please reach out to me if you have any questions or feedback.
You can use this form and I will forward it to the appropriate team member: https://energynewsbeat.co/investinoil/
Summary
Oil and gas investing has many different types and nuances but it is an excellent way to diversify your passive income and enter an alternative investment space. With Rising interest rates, cost of capital, and challenging deal flow oil and gas presents itself as an alternative investment that provides a similar upside while focusing on core passive income.
One of the beautiful parts about oil and gas investing is that it truly is passive income. Assuming you have done proper underwriting on your deal, no operator will ask you to change your toilet, sweep the floors, or make the bed. Also, unlikely Real Estate, most oil and gas deals will not require additional capital calls The opportunity is simple: find a great deal, invest in it, and receive the benefits of diversifying your portfolio into an alternative investment that provides monthly passive income.
The other upside to oil and gas investing is the massive tax benefits associated with oil and gas investments, where you can write off up to 80% of your overall investment. Check out this more in-depth oil & gas write-up.
Investment Types
At a high level, there are two different ways to invest in oil and gas: via syndication or direct placement. Each asset class can fall within either and syndication or direct, with each having positives and negatives associated with investing in the oil and gas space.
Syndication
Minerals and Royalties
Drilling
Wildcatting
Proven Development Drilling
Producing Assets
Direct
Minerals and Royalties
Drilling
Wildcatting
Proven Development Drilling
Producing Assets
Pro
Larger equity raise
Multiple assets within fund
Ability to pivot based on results
Higher potential exit value
Con
Must “evaluate the evaluators”
Fee’s & Carry
“Black box” of assets
More difficult to underwrite
Direct
Pro
Easy to underwrite
Investing directly into specific assets
No fees or carry
Con
Little ability to pivot off asset base
Timing of asset monetization vs. investment date can impact return profile
Asset Classes
Minerals & Royalties
Pro
Own the underlying mineral interest
Easy to underwrite
No capital calls
Monthly/quarterly income
Con
The value is based on production, oil/gas price, and potential drilling schedule
Easy to overpay
No tax benefits
Producing Assets
Pro
Easy to underwrite
Monthly income
Con
Little tax benefits
Oil/gas prices drive value
Declining asset
Drilling
Pro
Value increases when new wells are drilled
Higher monthly return profile
Higher exit multiple/potential
Up to 80% Tax Benefits*
Con
Harder to underwrite
Chance of lower-than-expected production: “dry-hole”
Potential Capital calls
Within drilling, there are two different ways operators can drilling new oil and gas wells
Wildcatting
Pro
Highest revenue potential
Exit
Monthly Revenue
Up to 80% Tax Benefits*
Con
Highly speculative
Hardest to underwrite
Proven Drilling
Pro
Higher revenue potential
De-risked by recent offsetting wells drilled
Up to 80% Tax Benefits*
Con
Speculative
Value-driven by overall production from new wells
Questions To Consider When Looking to Invest In Oil and Gas
Where are the assets located?
What is the target product: oil or gas?
Horizontal vs. Vertical?
General Partner Investment History?
History of the Property
Syndication vs Direct?
Will you capital call me if things go badly?
How To Evaluate
The team at Sandstone has a video series of evaluating a simple minerals and royalty deal publicly available via EnergyNet. The same process would be required to underwrite a drilling deal!
Here is the full video.
Sandstone Group specializes in structuring, underwriting, and fundraising for oil and gas companies. In their experience, they have helped raise over $80M with qualified sophisticated, non-accredited, and accredited investors.
Have a deal you would like to evaluate? Schedule a call with the Sandstone team here: https://tidycal.com/mtanner/oildealevaluation
Book some time to learn more about our current offering: https://trevinoresources.com/invest/
Learn more about Sandstone Group here: https://sandstone-group.com/oil-and-gas/
3-Year Oil and Gas Industry Outlook
"The oil and gas market has proven to be more resilient than many thought, but the road ahead is still complicated. While demand remains strong, especially with AI and data centers driving up natural gas consumption, we can't ignore the pressures from renewable energy and electric vehicle adoption. The energy transition isn't dead—it's just slower than expected. OPEC manages production cuts to stabilize prices, but it’s still a tough balancing act. For now, I expect prices to stay within the $70-$85 range, as Saudi Arabia and other producers need those price points for their economies. However, big shifts in the global economy, particularly in China, could throw off these forecasts. We need to stay agile and prepared for a dynamic market."
- Michael Tanner
"I'm extremely bullish on oil and gas. People have been talking about the decline of oil demand for years, yet here we are with strong and growing demand. The energy transition has not taken off as planned, and AI-driven data centers are increasing natural gas demand. There’s a massive gap in investment into oil and gas, and that deficit will drive a huge bull market. We need $4 trillion just to keep up with declining production. Add to that geopolitical instability and OPEC’s control over production, and I see oil prices pushing up toward $85-$95 per barrel easily. This is a golden age for oil and gas investments."
- RT Trevino
"Globally, oil and gas are not going anywhere. The energy transition might be advancing in parts of the world, but the global demand for oil, natural gas, and even coal is only increasing. Look at China—they are buying up as much oil as they can get, despite talks of a slowdown. Oil and gas still power the world’s industries and economies, from plastics to pharmaceuticals. The current push for renewables hasn’t reached a point where they can fully replace fossil fuels. OPEC’s strategy to keep prices in the $75-$80 range through production cuts ensures stability, but as demand keeps rising, particularly in non-Western markets, we’ll see oil retain its dominance globally well into the future."
- Stu Turley
*Make sure to include your CPA in any investment and double-check all of your potential investments with trusted advisors.