Frequently Asked Questions

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Kilsen Consulting Group provides strategic solutions for oil and gas firms and accredited investors to achieve results through proven strategies. 

Kilsen Consulting's President, Mike Sena has been involved in the sales and marketing of oil and gas joint ventures for over 17 years. 

Kilsen Consulting assists in the sales, marketing and funding of Oil and Gas Joint Venture Partnerships.

An investment in an Oil & Gas Direct Participation fund allows investors to participate directly in the fund’s cash flow, which is generated by the oil and gas assets owned by the fund. In addition, some investors may enjoy the tax benefits generated by the fund’s activities, which could potentially be used to help reduce the individual investor’s tax burden. 

Oil and gas direct investing offers many tax advantages that can help greatly enhance economics of an investment. The following information and Internet URL are provided for your convenience and should not be construed as tax advice from Kilsen Consulting Group. It is the responsibility of each PARTNER to investigate the tax consequences, under the laws of pertinent jurisdictions, of his or her investment in the FUND. THE ANALYSIS HEREIN IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.  ACCORDINGLY, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH HIS OWN PERSONAL TAX ADVISOR CONCERNING (i) THE APPLICABILITY TO AND EFFECT ON HIM OF THE UNITED STATES INCOME TAX LAWS AND THEIR ADMINISTRATION, AND (ii) THE APPLICABILITY TO AND EFFECT ON HIM OF STATE, LOCAL AND FOREIGN TAX LAWS AND THEIR ADMINISTRATION.  NO LAW FIRM OR ACCOUNTING FIRM HAS PROVIDED OR OTHERWISE Rendered an opinion on the FEDERAL, state, local or foreign tax consequences of an investment in THE FUND.

The Online U.S. Tax Code may be accessed at http://www.fourmilab.ch/ustax/ustax.html

Intangible Drilling Cost Tax Deduction
The intangible expenditures of drilling (labor, chemicals, mud, grease, etc.) are usually about (65 to 80%) of the cost of drilling an oil and/or gas well. These expenditures are considered “Intangible Drilling Cost (IDC)”, which may be 100% deductible during the first year for certain qualifying investors. For example, a $100,000 investment could yield up to $80,000 in IDC tax deductions during the first year of the venture. These deductions are generally available in the year the money was invested, even if the well does not start drilling until March 31 of the year following the contribution of capital. (See Section 263 of the Tax Code.)

Tangible Drilling Cost Tax Deduction
The total amount of the investment allocated to the equipment “Tangible Drilling Costs (TDC)” is 100% tax deductible. In the example above, the remaining tangible costs ($20,000) may be deducted as depreciation over a seven-year period. (See Section 263 of the Tax Code.)

Active vs. Passive Income
The Tax Reform Act of 1986 introduced into the Tax Code the concepts of “Passive” income and “Active” income. The Act prohibits the offsetting of losses from Passive activities against income from Active businesses. The Tax Code specifically states that a Working Interest in an oil and gas well is not a “Passive” Activity. (See Section 469(c)(3) of the Tax Code). As such, if the Fund owns one or more working interests in one or more oil or gas leases at any time during a tax year, individual investors that own general partnership interests directly or through entities that do not limit their liabilities with respect to their units should not be subject to the passive activity loss rules with respect to such working interests for the tax year. As a result, such investors should be able to utilize losses from the Fund from such working interests to offset future income from the Fund and their other so-called “active income” (e.g., salary) and “portfolio income” (e.g., dividends, interest and royalties not derived in the active conduct of a trade or business).

Small Producers Tax Exemption
The 1990 Tax Act provided some special tax advantages for small companies and individuals. This tax incentive, known as the “Percentage Depletion Allowance”, is specifically intended to encourage participation in oil and gas drilling. This tax benefit is not available to large oil companies, retail petroleum marketers, or refiners that process more than 50,000 barrels per day. It is also not available for entities owning more than 1,000 barrels of oil (or 6,000,000 cubic feet of gas) average daily production. The “Small Producers Exemption” allows 15% of the Gross Income (not Net Income) from an oil and gas producing property to be tax-free.

Lease Costs
Lease costs (purchase of leases, minerals, etc.), sales expenses, legal expenses, administrative accounting, and Lease Operating Costs (LOC) are also 100% tax deductible through cost depletion.