One year can carry a decade of income
A sale can concentrate years of value into a single tax year, often taxed as capital gain rather than ordinary income.
Where direct oil and gas ownership may fit after a sale, a raise or a step back to the board, and what it asks of you.
Building the business took years of focus on one thing. The capital it produced now needs a plan of its own, and the decisions made in the first year after a transaction tend to be the hardest to undo.
A sale can concentrate years of value into a single tax year, often taxed as capital gain rather than ordinary income.
Proceeds often sit in cash while offers and pitches arrive faster than you can evaluate them.
Rollover equity, an earnout or a retained stake can leave much of your wealth tied to one company.
After years of running things, owning assets you do not control can feel unfamiliar. That deserves thought before you commit.
Before looking at any asset, it helps to know which of these describes you. The distinction shapes how the tax rules later on this page apply.
A sale typically produces a large capital gain, sometimes alongside installment payments, an earnout or rollover equity. Ordinary deductions reduce ordinary income first, so in a year dominated by capital gain, a large deduction can be worth less than it first appears.
After closing, you may also have far less ordinary income than before. That changes what a deduction is worth in each future year, which is why timing should be modeled rather than assumed.
A raise may give you partial liquidity through a secondary sale while most of your net worth stays in the company. You are often still the operator, drawing a salary, with ordinary income alongside any gain.
The priority is usually reducing reliance on a single company without undermining your commitment to it. Check any restrictions your shareholder agreements or board place on outside business activities.
Stepping back can change both your income and your time. Board fees and any remaining compensation may be a fraction of what you earned as CEO, while your equity may still be substantial and concentrated.
With more time available, some former operators want to stay close to real businesses. That instinct is worth examining honestly: a JV member holds governance rights, but the operator runs the wells day to day.
No single asset does every job. A useful way to think about a balance sheet is to assign each part of it a purpose, then judge each asset only against that purpose. Select a layer to see what it does and what it gives up.
Layer widths are illustrative, not a recommended allocation. The right mix depends on your circumstances and should be set with your own advisers.
The money that has to be there no matter what happens in markets.
Oil and gas can enter a portfolio in several forms. They differ in what you own, what you pay for, what you can sell and which tax rules apply. Knowing the differences is the fastest way to evaluate any offer you receive.
| Attribute | Public energy stocks & fundsExchange-traded | Mineral & royalty interestsShare of revenue | Limited partnership programsPooled, sponsor-managed | Direct working interestHow Summit JVs are structured |
|---|---|---|---|---|
| What you hold | Shares in a company or fund that owns energy assets | A right to a share of production revenue, free of drilling and operating costs | Units in a partnership that holds interests on your behalf | A direct share of specific wells, their costs and their revenue |
| Your share of costs | None directly | None | Borne inside the program | Proportional to your interest, including overruns |
| Liquidity | Daily, on an exchange | Limited; usually a private sale | Limited; often none until the program winds down | Limited; generally held for several years |
| Tax attributes that reach you | Dividends and capital gains | Depletion on royalty income | Drilling deductions and depletion, generally usable only against similar income | Drilling deductions, depreciation and depletion, subject to the limits in Chapter 4 |
| Can deductions offset other active income? | No | Not applicable | Generally no | Potentially, under the working-interest rule |
| Liability | Limited to what you put in | Limited | Limited for limited partners | Not limited in the same way; this is the tradeoff that enables the tax treatment |
| Your role | None | None | Limited partner with few decisions | JV member with governance rights and participation in material decisions |
| Eligibility | Open to anyone | Varies | Often limited to accredited individuals | Accredited individuals, verified before any commitment |
General characteristics only. Individual programs and offerings vary, and specific terms are set out in each offering's documents.
The ownership share that carries the right to develop and produce a property, and the obligation to pay a proportional share of the costs of doing so. Working-interest owners receive their share of revenue after royalties are paid, and they bear their share of the expenses and the outcomes.
A share of production revenue, usually retained by the mineral owner, that is paid before costs and carries no obligation to fund drilling or operations. Simpler and lower in cost exposure, but royalty owners have no say in development and do not receive drilling-related deductions.
Tax treatment is often why business owners first hear about oil and gas. It is also where most misunderstandings start, especially in a transaction year. Here is how the core rules work, followed by the limits that matter most after a liquidity event.
Labor, fuel and drilling services can be deducted in the year they are incurred. On a new well, they are typically a large share of the cost.
Casing, wellheads and tanks are capitalized and depreciated over time. Accelerated depreciation may apply.
Once a well produces, qualifying owners may deduct 15% of gross income from the property each year.
Working interests held without limited liability are exempt from the usual loss limits, so deductions may offset active income such as salary or business income.
These are the rules most often left out of oil and gas marketing, and the ones most relevant in and after a transaction year. Each is a reason to have your CPA model a specific project against your actual numbers.
Deductions reduce ordinary income first, so their value depends on how much ordinary income you have.
Caps how much net business loss can offset non-business income each year. The excess carries forward.
Drilling costs can be an AMT preference item, depending on your wider tax picture.
Some deductions are taxed back as ordinary income when an interest is sold.
Your state, and any move around the time of a sale, changes the net effect.
The project should still make sense if the tax treatment became less favorable.
Summit focuses on redeveloping proven fields, which can combine new drilling, work on existing wells and acquisitions of producing assets. Select a project type to see which attributes typically matter most. This is a qualitative guide, not a projection.
Most spending on a new well is drilling-related.
Casing, wellheads and surface equipment are capitalized.
Begins only after the well produces.
Revenue waits for drilling and completion.
A single Summit project may combine all three. For any specific project, ask for the expected split of costs between drilling, equipment and acquisition, and have your CPA apply it to your own situation.
Direct ownership means sharing in the operational risk of a real business. These considerations deserve as much attention as the tax treatment.
A well can perform as planned and still earn less if prices fall.
Reserve estimates are engineering judgments, not certainties.
Owners pay their share of costs, including overruns and repairs.
There is no public market. Plan for capital to stay committed for years.
The tax treatment depends on liability not being limited. Review it with your attorney.
Deductions can be limited, recaptured or changed by new legislation.
After a sale, avoid replacing one concentrated position with another. Sponsor quality matters.
Evolving regulation can affect costs and timelines.
Short, direct answers for owners after a transaction. Where the answer depends on your situation, we say so.
This website is provided by Summit Ventures for general informational and educational purposes only. It does not constitute an offer to sell, or a solicitation of an offer to buy, any security or interest, and no such offer or solicitation will be made except through definitive offering documents provided directly to verified accredited participants.
Participation in a Summit Ventures joint venture is limited to individuals and entities that qualify as accredited under Rule 501 of Regulation D, and Summit Ventures takes reasonable steps to verify that status before any commitment is finalized, consistent with Rule 506(c) of Regulation D.
Direct working-interest participation in oil and gas development involves risk, including commodity price volatility, operational and geological risk, illiquidity, and the potential loss of some or all committed capital. Past performance of any Summit Ventures program, and the experiences described by any individual participant, are not indicative of future results and should not be viewed as typical or guaranteed.
Tax information referenced on this website is general in nature and reflects tax law believed current as of publication. It has not been prepared for any specific individual or transaction and is not a substitute for advice from independent, qualified tax and legal counsel.
Statements from program participants reflect their individual experience and are not paid testimonials unless otherwise disclosed. Individual results vary, and no statement here should be construed as a projection or promise of similar outcomes.