Summit Venture

Chapter 1

Your situation

Why a liquidity event creates a different kind of planning problem

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.

Tax	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.
Timing	Liquidity arrives before the plan does	Proceeds often sit in cash while offers and pitches arrive faster than you can evaluate them.
Concentration	You may still be concentrated	Rollover equity, an earnout or a retained stake can leave much of your wealth tied to one company.
Transition	From operator to allocator	After years of running things, owning assets you do not control can feel unfamiliar. That deserves thought before you commit.

Your transaction matters

The same deduction can work very differently depending on the event you had

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.

Sold the company

Founders and owners after a sale or merger

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.

Questions for your CPA
How much ordinary income will I have this year and next, and what would a deduction actually save?
How do installment payments or an earnout change the timing?
How does the excess business loss limit treat my transaction?

Raised capital

Founders after a funding round or secondary sale

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.

Questions for your CPA
How is my secondary sale taxed, and does qualified small business stock treatment apply?
How would an outside business deduction interact with my salary this year?
Do any shareholder agreements restrict outside activities?

Stepped back to the board

CEOs moving from the operating seat to the board

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.

Questions for your CPA
How does my income change once I leave the CEO role?
How are my board fees taxed, including self-employment tax?
How concentrated is my net worth in one company's equity?

Chapter 2

Capital roles

Before energy: what each part of your capital is for

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.

Reserves

Cash, Treasury bills, money market funds

The money that has to be there no matter what happens in markets.

Its job Cover the tax bill on the transaction, near-term obligations and a runway while you decide what comes next.
What it gives up Growth. After inflation and tax, cash tends to lose purchasing power over long periods.
Worth asking Have I set aside the full tax on the transaction, including estimated payments, before committing anything else?

Core market holdings

Diversified stock and bond funds, retirement accounts

For most people, this is the engine of long-term wealth and is built first.

Its job Long-horizon growth through broad, low-cost diversification, with daily liquidity and well-understood tax treatment.
What it gives up Control and certainty. Prices move with markets, and in a sharp decline most holdings tend to fall together.
Worth asking Does this layer reduce my exposure to my former company and its industry, or add to it?

Real assets and private holdings

Real estate, private funds, business interests

Assets whose value is tied to something physical or to a private business rather than a stock price.

Its job Income that is linked to real activity, potential inflation sensitivity, and exposure that does not move in lockstep with public markets.
What it gives up Liquidity and simplicity. These assets can take months or years to sell, require more diligence, and often carry higher minimums.
Worth asking How much of my proceeds can I leave untouched for five years or more?

Direct operating ownership

Including working interests in oil and gas wells

Owning a share of an operating business directly, with its costs, decisions and outcomes. A direct working interest in oil and gas wells sits here.

Its job Participation in the economics of a real operation, with governance rights and tax attributes that flow directly to owners.
What it gives up Liquidity, limited liability and predictability. Outcomes vary widely by project, and for many owners the right amount in this layer is zero.
Worth asking If this capital were lost entirely, would my plans change? If yes, this layer is premature.

Layer widths are illustrative, not a recommended allocation. The right mix depends on your circumstances and should be set with your own advisers.

Chapter 3

Ways to own energy

Four ways to hold energy exposure, and what each actually gives you

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

Working interest 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.
Royalty interest 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.

Chapter 4

Tax mechanics

The tax mechanics, explained without the shortcuts

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.

IRC §263(c)	Intangible drilling costs (IDCs)	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.
Depreciation	Tangible drilling and equipment costs	Casing, wellheads and tanks are capitalized and depreciated over time. Accelerated depreciation may apply.
IRC §613A	Percentage depletion	Once a well produces, qualifying owners may deduct 15% of gross income from the property each year.
IRC §469(c)(3)	The working-interest rule	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.

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.

New drilling

Intangible drilling costs	3	Typically significant	Most spending on a new well is drilling-related.
Equipment depreciation	2	Can be meaningful	Casing, wellheads and surface equipment are capitalized.
Depletion	2	Once producing	Begins only after the well produces.
Early production income	1	Delayed	Revenue waits for drilling and completion.

Work on existing wells

Intangible drilling costs	2	Depends on the work	Recompletions and new zones can generate IDCs; routine repairs are treated differently.
Equipment depreciation	2	Can be meaningful	New pumping or surface equipment is capitalized.
Depletion	3	Typically significant	Wells are already producing, so depletion applies.
Early production income	2	Existing plus added	Existing production continues while new work comes online.

Acquiring producing wells

Intangible drilling costs	1	Usually limited	The drilling already happened; little of the price is drilling cost.
Equipment depreciation	2	Can be meaningful	Part of the price may be allocated to equipment.
Depletion	3	Typically significant	Much of the price is recovered through depletion.
Early production income	3	From acquisition	Production is already flowing at purchase.

The limits that matter after a liquidity event

Where the headline benefits get smaller

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.

Capital gain years Deductions reduce ordinary income first, so their value depends on how much ordinary income you have.
Excess business loss limit Caps how much net business loss can offset non-business income each year. The excess carries forward.
Alternative minimum tax Drilling costs can be an AMT preference item, depending on your wider tax picture.
Recapture on sale Some deductions are taxed back as ordinary income when an interest is sold.
State residency Your state, and any move around the time of a sale, changes the net effect.
Laws change The project should still make sense if the tax treatment became less favorable.

Chapter 5

What you take on

What a JV member takes on

Direct ownership means sharing in the operational risk of a real business. These considerations deserve as much attention as the tax treatment.

Commodity prices you do not control A well can perform as planned and still earn less if prices fall.
Wells that perform differently than modeled Reserve estimates are engineering judgments, not certainties.
Additional costs Owners pay their share of costs, including overruns and repairs.
Illiquidity There is no public market. Plan for capital to stay committed for years.
Liability exposure The tax treatment depends on liability not being limited. Review it with your attorney.
Tax outcomes that can change Deductions can be limited, recaptured or changed by new legislation.
Concentration and sponsor risk After a sale, avoid replacing one concentrated position with another. Sponsor quality matters.
Environmental and regulatory change Evolving regulation can affect costs and timelines.

Can oil and gas deductions offset the gain from selling my business?

Not in the way many people assume. Deductions from a working interest held without limited liability can offset active income, but ordinary deductions reduce ordinary income first, and capital gain is taxed at its own rates on top. In a year dominated by a sale, a large deduction may save less than it appears. The excess business loss limit can also cap how much is usable in one year. Your CPA should model it against your actual transaction.

Should I decide quickly after closing?

Rarely. Most owners are better served by setting aside the full tax on the transaction, funding reserves and letting the dust settle before committing capital anywhere illiquid. Direct ownership will still be available once the plan is clear.

Would JV membership let me stay involved in an operating business?

In part. Summit structures its ventures as entrepreneurial joint ventures, and JV members hold governance rights and take part in material decisions. The wells themselves are run day to day by the operator, so it is participation in a business rather than running one.

Do I qualify?

Participation is limited to individuals and entities that are accredited under SEC Rule 501. For individuals, the common tests are income above $200,000, or $300,000 together with a spouse or spousal equivalent, in each of the past two years with a reasonable expectation of the same this year, or a net worth above $1 million excluding your primary residence. Because Summit relies on Rule 506(c), it takes reasonable steps to verify status before any commitment.

How long would my capital be committed?

Treat it as committed for several years. There is no public market for a working interest, and an exit on a particular timeline cannot be assumed. Summit's Exit Right discipline reviews each asset continuously to decide whether to hold, optimize or exit.

I still have rollover equity or an earnout. Does that matter?

Yes. A retained stake or earnout means part of your wealth is still tied to one company, and future payments may change your tax picture in later years. Both are worth weighing before adding any other concentrated or illiquid position.

What about liability and asset protection?

It is the right question to ask. The working-interest rule depends on your liability not being limited in the way a limited partner's is. Ask Summit what insurance covers operations and how the venture is structured, and review both with your own attorney before committing.

What will my CPA need from Summit?

Typically the expected split of costs between drilling, equipment and acquisition, the expected timing of funding, how the venture reports to members for tax purposes, and the states where the properties are located. Summit can provide project-level information on request so your CPA can model it against your transaction year.

The Deal Is Done. The Next Decision Is Harder.