Crudefunders.com lists two types of projects that are open to individual investors over the age of 18; (1) Regulation D 506 offerings in which only accredited investors can participate ; and (2) Regulation Crowdfunding (Reg CF) offerings in which almost anyone age 18 or over, both accredited or unaccredited, can participate for as little as $2,000.
The term "accredited investor" is defined in Rule 501 of Regulation D of the Securities and Exchange Commission for individual investors as:
As an individual investor, over the course of a 12-month period, you are permitted to invest in the aggregate across all crowdfunding offerings up to $100,000 as follows:
No. Crudefunders does not charge fees to investors. Project sponsors will pay a success-based transaction fee of cash and/or carried interest in producing wells if the minimum investment requirement is met. In addition, project sponsors are responsible for any associated listing or development fees with regards to their offering.
If the minimum investment requirement is not reached, 100% of investment dollars committed will be returned to investors.
Yes. Oil and gas investments inherently involve highly speculative activities in which results cannot be exactly predicted and which necessarily involve risk of loss. Legal and tax professionals should be consulted before any investment is considered in an oil and gas project.
Many private oil and gas projects encounter mechanical and geophysical risk. To mitigate this risk, some investors may choose to build a portfolio of companies to spread their risk across a number of different companies.
Investors should consider whether investing in a security offered and sold in reliance on Section 4(a)(6)(Regulation Crowdfunding) is appropriate for him or her.
First a Reg CF offering goes live on the Crudefunders site, with all of the offering materials. Potential investors can evaluate the offering documents to see if they would like to Invest. If they decide to invest they can hit the invest button, transfer funds and sign documents. Once the deal closes the capital will go to the sponsor and the investor will receive an interest in the project.
As an investor of Project offerings are obligated to hold his or her Interest and is prohibited from transferring, assigning or otherwise disposing of same without first satisfying certain conditions.
There is no ready market for the sale of the securities acquired, therefore it may be difficult or impossible for an investor to sell or otherwise dispose of their investment.
The Company, as the Issuer of the securities, will furnish investors quarterly operating and oil & gas production reports on the Company's website as described in the Offering Circular.
On an annual basis, the Company must file certain financial and other information with the SEC and post it on its website. Crudefunders supports regular updates to keep investors educated and informed about the progress of the Company and its investment in the Projects.
However, regardless of whether the company has terminated its ongoing reporting requirements per SEC rules, if a Project is active, Crudefunders will encourage the Company to continue providing its investors quarterly updates.
On successful closing of most offerings, the Intermediary of Crudefunders.com, North Capital Private Securities Corporation, direct relationship with the Intermediary is completed. However, Crudefunders, LLC, as an agent of the Intermediary, may continue to provide certain services to the Company, based on a separate agreement with the Company, including ongoing investor relations services. Crudefunders will perform these services independent of the Intermediary and receive in exchange for such services compensation as set forth in the Offering Circular.
Project sponsors come to Crudefunders through our online portal and extensive relationships with operators, drillers, associations, and industry contacts. Our advisory board, which includes people from the worlds of legal, accounting, technology, landmen, and oil field services, also assist in the sourcing process.
Our due diligence may include the following reviews, as appropriate for the particular potential offering:
Investors typically receive shares in a limited liability company issued and managed by the project trustee, which represent a working interest in one or more oil or gas wells. Revenue from the sale of oil or gas is paid to the company on a monthly and/or quarterly basis. Crudefunders is authorized to collect from the company manager and distribute revenue to investors. In the case of liquidation event, such as by acquisition, you will receive your portion of the proceeds from the sale. In addition, the rights of the investor will differ based on the type of security offered. It is important for you to carefully review all offering documents. If you have any questions or concerns, please consult your personal financial advisor(s).
Initially many reservoirs have sufficient hydrocarbon saturation to be attractive but lack either enough pressure (actually the difference between the pressure in the reservoir and the pressure in the wellbore when producing), thickness or permeability or low enough viscosity (or some combination of these) to allow the reservoir to produce fluids at an attractive rate. Limited reservoir thickness is now usually overcome by drilling horizontally (a relatively recent development that also overcomes the problem of low permeability but it's expensive) and viscosity can be improved near wellbore by heat (steam usually). We can't normally increase the reservoir pressure unless it has been depleted by prior activity and then some form of pressure maintenance is used (water injection usually). However, improving the permeability of the reservoir can sometimes be achieved by either injecting acid to remove some of the carbonate material (if present) or fracturing the reservoir which provides an easier pathway to the wellbore for the fluids. Acidizing and fracturing are the two most common methods of stimulation. However, over time the benefits of acidizing and fracturing can diminish and some reservoirs benefit from being "re-acidized" or "re-fractured" (re-stimulated) a second or even a third time. In many cases, a sponsor looks at other wells in the area producing from the same formation to see if re-stimulation has been attempted and if so what affect it had.
Authority For Expenditure
Barrel or Barrels (A Barrel is 42 U.S. gallons)
Barrels of oil for all production in equivalent volumes
Back In After Payout
Barrels of Oil per Day
Billion Cubic Feet of Gas
Barrels per Million Cubic Feet of Gas
Barrels of Condensate (liquid hydrocarbons separated from gas)
Barrels of Condensate per Day (Condensate is a high gravity crude oil generally associated with gas wells)
Bottom Hole Pressure
Bottom Hole Shut-In Pressure
British Thermal Unit—The amount of heat required to raise the temperature of one pound of water one degree Fahrenheit under standard conditions of pressure and temperature..
Casing Pipe cemented in the well to seal off formation fluids or keep the hole from caving in.
Gas found naturally in oil and produced with the oil
The system of pipes, valves, gauges and related equipment that is located on the well at ground level and that controls the flow of gas and other petroleum products produced from the well.
As a unit of volume, 1.728 cubic inches; As applied to water, 7.48 gallons; As applied to natural gas, the volume of gas which, when saturated with water vapor at 60F and at the pressure of 30 inches of mercury occupies one cubic foot of volume.
Cast Iron Bridge Plug
A well drilled to a known producing formation in a previously discovered field.
The first oil or gas well drilled in a new field to reveal the actual presence of a petroleum-bearing reservoir.
Well used for disposal of saltwater into an underground formation.
Any well drilled for the purposes of securing geological or geophysical information to be used in the exploration or development of oil, gas, geothermal, or other mineral except coal and uranium.resources,
Area of oil and gas production with at least one common reservoir for the entire area.
A separate layer of rock or group of intermingled beds.
Flowing Tubing Pressure
Flowing Bottom Hole Pressure
High pressure or explosive method of fracturing rock formation. (Re-Stimulation)
Held By Production
A well which is not vertically drilled as defined in TRC rules.
Initial Bottom Hole Flowing Pressure
Intangible Drilling Cost (encompasses all costs that are not tangible, i.e. pipe, tanks and other physical equipment).
Internal Rate of Return—is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project equal to zero. See PV10.
Initial Shut-in Pressure
Kelly Bushing—Drilling rig equipment that fits inside the rotary table and is also used as a reference point on logs to calculate depth.
Lease Operating Expense
Thousand Cubic Feet—Gas is sold on an Mcf basis; The price of gas is quoted "Per Mcf"
Drilling fluid used to lubricate the drill string, line the walls of the well .
Million Cubic Feet
Million Cubic Feet of Gas—Cumulative production of gas from a well is generally stated MMcf if production is less than a Bcf (Billion Cubic Feet). Sometimes, however, it is stated a percentage of Billion Cubic Feet. For example; .575 Bcf is the same as: 575 MMcf or even possibly 575,000 Mcf.)
Thousand Cubic Feet of Gas Per Day
Natural Gas Liquids
Plugged back total depth
Proved Developed Producing
Holes through casing and cement into the productive formation.
Ability of rock to transmit fluids through pore spaces.
Hole dug next to drill site for temporary storage of fluids during drilling operations.
Percentage of the rock volume that can be occupied by oil, gas, etc
Pounds per Square Inch—term measuring pressure on a 1" area.
Plugged and Abandoned—seal off formations to isolate fluids.
PV10 is the current value of approximated oil & gas future revenues, minus anticipated expenses, discounted at a rate of 10% per year. To calculate PV10, engineers create a reserve report of existing wells and proven undeveloped wells, taking into account present production rate, individual production costs and expenses for reserve development, and the forecast decline rate.
Reg CF (Regulation Crowd Funding) offerings are those in which both accredited and unaccredited investors may participate with a minimum investment of $2,000. (Reg CF)
Reg D 506(b) or 506(c) offerings are for accredited investors only. (Reg D)
Rate of Return—See IRR above.
Outer casing cemented in upper portion of wellbore to protect fresh water formations from contamination.
Tanks for oil storage before delivery to a refinery.
Total Depth of well
A well drilled to discover a new field or reservoir.
Interval of subsurface formation.
There are significant tax advantages associated with private investments in domestic oil and gas drilling and production in the U.S. today. The Internal Revenue Code of 1986, as amended (the "Code") currently provides tax advantages for joint venture direct investments in oil and gas drilling and production in order to encourage investment in oil and gas exploration within the United States. However, in order to benefit from these tax incentives investors must meet certain requirements – investing in a publicly traded stock does not generate the same types of tax advantages. This overview sets forth some of the tax benefits associated with investing in joint ventures. Of course, prior to making any investment you are encouraged to consult with your tax advisor regarding how any specific investment will be treated given your particular circumstances.
The Code classifies investments in joint ventures formed to purchase working interests in oil and gas properties as an "active" business activity. This is beneficial because it allows individuals to offset costs from oil and gas joint ventures against other income from "active" business income from salaries, businesses in which they participate, and stock trades. The same benefits are not associated with "passive" investments, such as investments in stock in corporations. Intangible Drilling Costs include everything but the actual installed equipment. Labor, chemicals, mud, grease and other miscellaneous items necessary for well re-working are considered intangible. These expenses generally constitute 65-80% of the total cost of working a well and are 100% deductible in the year incurred and will potentially generate a write off against active or portfolio taxable income.
IDC costs comprise a substantial portion of the expense associated with drilling and developing a well, and include drilling expenses, such as site preparation, rig costs and the expensive, high-pressure fracturing of rock formations. A substantial portion (approximately 65%-80%) of a direct investment in a domestic oil and gas venture may constitute IDC and be deductible.
Tax incentives from limited partnerships are available on a pass-through basis. The partner will receive a Form K-1 each year detailing his or her share of the revenue and expenses termed the Net Revenue Interest (NRI). For any given project, regardless of how the income is ultimately distributed to the investors, production is broken down into gross and net revenue. Gross revenue is simply the number of barrels of oil or cubic feet of gas per day that are produced, while net revenue subtracts both the royalties paid to the landowners and the severance tax on minerals that is assessed by most states.
Equipment including pipe, well casings, tubing, storage tanks, pumping units and other items that remain with the well after its completion are considered depreciable. These additional expenses may generally be depreciated over a seven-year period. Up to $17,000 of total completion costs per investor can be written off as a one-time charge in any given year with the remaining balance depleted (deducted) over a period of 7 years reducing income tax expense paid to tax authorities. Approximately 15% to 25 % of the amount of your investment is allocated to equipment as "Tangible Drilling and Completion Costs" (TDC's), and may be deducted from your income over a seven (7) year period.
Depletion Allowance applies to revenues from oil exploration and development projects. Participants will pay taxes on only 80-85% of total gas and oil income they receive. The impact of the depletion allowance is to generally make 15% to 25% of the gross income from a direct investment in an oil and gas property tax-free. The owner of an economic interest in a U.S. oil and gas property is generally entitled to claim the greater of "percentage depletion" or "cost depletion." Percentage depletion is generally available only to the domestic oil and gas production of "independent producers." To qualify as an independent producer, the taxpayer either directly or through related parties, may not be involved in the refining of more than 50,000 barrels of oil (or equivalent of gas) on any day during the taxable year or in the retail marketing of oil and gas products exceeding a total of $5. In contrast, cost depletion for any year is determined by multiplying the cost basis of the mineral interest by a fraction, the numerator of which is the number of barrels of oil (or mcf of gas) sold during the year, and the denominator of which is estimated recoverable units of reserves available at the beginning of the depletion period. In no event may the cost depletion exceed the adjusted basis of the property to which it relates. One important limitation on the depletion allowance is that the deduction in any tax year may not exceed 65% of the taxpayer's taxable income from all sources. Typically, any excess depletion allowance may be carried forward.
The above examples are for general information only and are not intended as individual tax advice. Federal and state tax laws are complex. Consult your personal tax advisor concerning the applicability and effect of oil and gas investments on your personal tax situation and, more specifically, whether or not oil and gas investments would produce favorable tax advantages in your tax situation. This information was current as of the date this document was first printed. However, tax laws change from time to time and there can be no guarantee of the interpretation of the tax laws. The tax benefits of oil and gas investments are merely one factor to consider in evaluating a potential investment and do not eliminate he risks of such investments.
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