subject: Direct Ownership In Oil And Gas Wells - Securities Information [print this page] Oil and Gas Investments ( Direct Participation Programs) are considered to be a Non-Registered Securities ( in most cases) and can only be sold or offered by three different types of entities.
1. Broker/Dealers- Those companies that are registered with the Securities Exchange Commission/NASD 2. Independent Oil and Gas Companies / Must be sold by Officer of the Company 3. Registered Operators - These entities must register with the State Securities. Operators are authorized to apply for Drilling Permits and manage the well.
Master Limited Partnerships are a fully registered Securities and are also used for oil and gas direct participation programs. Fully registered Securities are expensive and time consuming to prepare for an offering of an oil and gas drilling program. This type of Partnership is rarely used except for very large venture capital programs. Almost all offerings of oil and gas direct participation are considered to be non-registered and fall under a (Regulation D Exemption from registration with the SEC). In most of the states in the U.S., the issuer is required to file the offering and information of sale, with the State Securities Division within 15 days of sale. The registration of these investments are called Blue Sky. Never do business with a company that does not Blue Sky their memorandums. This is to protect the public from fraud.
A fully disclosed Memorandum is required by law when selling these types of investments.k.a Confidential Information Memorandum. This document must fully disclose all legalities and risks associated with this type of investment and exstensive information on the drilling program being sold. A potential investor must see this information before purchasing working interest in an oil and gas drilling program. This is required by State and Federal Laws. A properly constructed memorandum should be at least 80 pages in length with attached exhibits. Extensive information in regards to State and Federal Securities Laws, Tax Information, Overview of the Drilling Program, Turnkey Drilling and Testing Contract, Turnkey Completion Contract, Operator Agreement and Risks.
Simply put, you Never invest or sign any contracts until you are provided a Memorandum that shows Full Disclosure about all aspects of the offering. Drilling oil and gas wells does have risks, don't add to those risks by dealing with any company that does not follow the requirements set forth by the Securities Exchange Commission and your State Securities Agency. Some attorneys will charge a minimum of $10,000.00.00 to $15,000.00 to prepare a properly constructed memorandum.
Investing in Oil and Gas can be extremely rewarding and the tax benefits are substantial to an investor, but be careful and ask questions.
