Tax Benefits

Federal Income Tax Deductions Available:

1. Intangible Drilling Costs (IDC): Investors can benefit from immediate tax deductions for Intangible Drilling Costs, which are 100% deductible in the year these costs are incurred. This includes expenses such as labor, field G&A, equipment rental, chemicals, and survey work associated with drilling. See IRS Publication 535, page 25, for more details on these deductions. This equates to roughly 80% of the investment amount being able to be written off first year. 
2. Tangible Drilling Costs (TDC): Tangible Drilling Costs, covering expenses like equipment and physical assets, are 100% tax-deductible in the year the costs are incurred and the assets are placed in service, thanks to Bonus Depreciation. This equates to roughly 20% of the investment amount being able to be written off over a 5 year period. 
3. Percentage Depletion: Investors can also benefit from a tax deduction through percentage depletion, allowing for a deduction of 15% of the gross income derived from oil and gas production, even if it exceeds the cost depletion, subject to certain limitations.
4. Lease Operating Costs: All operating costs associated with the lease are 100% tax-deductible, providing additional relief to investors.
5. Exemption from Passive Loss Rules: The working interest owned by the Joint Venture qualifies for exemption from the passive activity rules if the partner’s ownership in the Joint Venture meets specific exception guidelines, allowing active participation in the investment.

Tax advantages vary depending on your personal tax situation. Please consult your tax advisor, as current laws are subject to change. Certain rules may limit an investor’s ability to take tax deductions from the venture. This information is intended to help participants make informed investment decisions, and it is not written or intended to be used for the purpose of avoiding tax penalties. Investors should seek advice based on their particular circumstances from an independent tax advisor.

Potential investors must read the Confidential Memorandum relating to this investment to understand the risks involved. Tax risks associated with an investment in the venture are substantial and are more fully described in the Confidential Information Memorandum under "Risk Factors – Risks Related to Tax Matters" and "Tax Aspects."