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1031 Energy: Like Kind Exchanges for Oil and Gas

REAL ESTATE IS LIKE KIND TO OIL AND GAS

Over the last five years, many areas of the Country have seen large increases in the value of real estate. Part of this is due to investors shifting capital into real estate and away from stocks. The result of this shift in capital has been increased competition for quality real estate investments and an aggregate decline in rates of return on real estate.

Are you a real estate investor seeking higher cash on cash returns while maintaining 1031 tax deferral and liquidity of investment? If so Castle Oil and Gas is for you.

CAN I 1031 EXCHANGE REAL ESTATE FOR AN INTEREST IN OIL AND GAS INVESTMENT?

Often the answer is yes. Usually in oil and gas production the minerals are leased from the mineral owner by an oil company. The oil company then drills the well. If oil or gas is discovered then the mineral lease is extended indefinitely for so long and the oil and/or gas is produced. The IRS has ruled that a leasehold interest in a producing oil lease extending until the exhaustion of the deposit was like-kind to a fee interest in an improved ranch. Rev Rul 68-331. Similarly, the IRS has ruled that a royalty interest in oil and gas is like kind to real estate. Rev Rul 72-117. The IRS has also ruled that mineral rights may be exchanged for a city lot. CIR v. Crighton, 122 F.2d 181.

Castle Oil and Gas interests are structured to fit within these tax authorities. You may 1031 exchange from your real estate into a working interest in an oil and gas well. Secondly, it is very possible you would have better tax benefits by owning interests in oil and gas properties. (Please contact our office for a more complete explanantion.)

LIQUIDITY OF OIL AND GAS PROPERTIES: GLOBAL / REGIONAL RATHER THAN LOCAL

Real estate markets, while changing, tend to be rather local. Buyers and sellers are usually local, and local markets are influenced by local economic factors. By contrast, the oil and gas market is global (oil) or at least regional (gas). Similarly, there is an active market for producing oil and gas properties. On at least a quarterly basis, buyers and sellers offer their producing properties for sale through large auction houses. If you buy an oil and gas interest from Castle Oil and Gas, you will be provided with independent petroleum engineering report which anticipates future life of the production. You will also be provided with historical production reports on your well(s). Your monthly income statement includes detailed production reports. All of these reports will allow you to resell your interest in a competitive but highly liquid market place.

SAFETY OF OIL AND PROPERTIES

Oil and Gas interests are sold on the basis of past production of the well in question, and on the basis of past production of nearby wells which are producing from the same zone. Zone means geologic strata. From this data, independent petroleum engineers make predictions about anticipated future production. The oil and gas interest is then sold on the basis of this future production. Data on past production from oil and gas wells is very reliable. The reason for this is that oil and gas production records are forwarded to the various State governments for the purpose of collecting extraction taxes. Oil and Gas producers are subject to legal penalties for inaccurate reporting of production. The industry, therefore, has reliable production reports on producing oil and gas wells. From these reports independent petroleum engineers can derive a production curve for each producing well. You will be provided with a report from an independent petroleum engineer on any Castle Oil and Gas prospect.

Contact us at Infox@1031energy.com. We can help you add oil and gas properties to your portfolio.

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