Oil and Gas Opportunity question

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Topic Author
oembogle
Posts: 21
Joined: Wed Apr 03, 2019 12:33 pm

Oil and Gas Opportunity question

Post by oembogle »

Hi Bogleheads ,
66 working but will retire in a few months.
Wife already retired and taking Social Security . No Pensions. Home and 2 Rentals paid off.
About 2M in qualified and 2M in unqualified and plan on doing Roth conversions until 72 to lower RMDs .
I have been working with Attorney on Wills, POA , Medical directives etc .
Attorney wanted me to meet with her Father in Law & Husband and CPA .
I did some research and located ADV for FIL's firm and see that they are broker/dealer so i thought i was in for annuity pitch .
The meeting turned out to introduce me to another person pitching a new "Alternative Investment" consisting of Oil and Gas properties, Commercial Real Estate and other items. They told me that I could take 1M from IRA and invest in this partnership. They would issue a Schedule K to show i had a loss .
The 1M IRA income realization would be offset by a 1M loss resulting in a non income event. I would have to keep my money in investment for 2 years and would receive income from this . I told them that i already had 2000 shares of XOM and 2 rental properties so i did not need any more exposure to these sectors. They were insistent that this was a wise tax move and would lower my RMDs without having to pay tax on money i invested in them .
I may have misstated some of what was purported but it was a 'new' partnership and would be used to declare loss with Schedule K (?) .
My Question :
Does this make sense as it seems to be a bit shaky and investing in a few dozen producing oil wells in an out of favor industry (oil/gas) ?
Can i really null out the IRA distribution with a Tax Loss in the Oil/Gas partnership (Schedule K) ?
Even if Taxable income is Nulled out wouldn't my IRMAA be impacted as that seems to account for all income ?
They made light of Fee Only CFPs saying they had 'no skin in the game' and only Wealth Managers that charged Expense Ratios on AUM would have the investors interest at heart .
Any thoughts on this ?
Blessed be the Bogleverse .
Silk McCue
Posts: 6065
Joined: Thu Feb 25, 2016 7:11 pm

Re: Oil and Gas Opportunity question

Post by Silk McCue »

Run. Please run. You’ve done very well for yourself to date. Don’t get greedy and screw it up.

I wouldn’t trust the attorney after them doing this. I expect it is a conflict of interest to make this introduction. Even if that isn’t technically correct it is at a gut level for me.

Cheers
000
Posts: 6033
Joined: Thu Jul 23, 2020 12:04 am

Re: Oil and Gas Opportunity question

Post by 000 »

Run away.
Capitulation of bears is part of the market topping process.
quattro73
Posts: 45
Joined: Sun Jun 20, 2021 2:07 pm

Re: Oil and Gas Opportunity question

Post by quattro73 »

Is it an MLP? Avoid.
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22twain
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Re: Oil and Gas Opportunity question

Post by 22twain »

Assuming for the sake of argument that this works out as promoted, how much would you gain from it overall, and how much would it affect your lifestyle or family/charitable bequests?
It's "Roth", not "ROTH". Senator William Roth was a person, not an acronym.
Valuethinker
Posts: 43385
Joined: Fri May 11, 2007 11:07 am

Re: Oil and Gas Opportunity question

Post by Valuethinker »

oembogle wrote: Wed Nov 24, 2021 9:28 pm Hi Bogleheads ,
66 working but will retire in a few months.
Wife already retired and taking Social Security . No Pensions. Home and 2 Rentals paid off.
About 2M in qualified and 2M in unqualified and plan on doing Roth conversions until 72 to lower RMDs .
I have been working with Attorney on Wills, POA , Medical directives etc .
Attorney wanted me to meet with her Father in Law & Husband and CPA .
I did some research and located ADV for FIL's firm and see that they are broker/dealer so i thought i was in for annuity pitch .
The meeting turned out to introduce me to another person pitching a new "Alternative Investment" consisting of Oil and Gas properties, Commercial Real Estate and other items. They told me that I could take 1M from IRA and invest in this partnership. They would issue a Schedule K to show i had a loss .
The 1M IRA income realization would be offset by a 1M loss resulting in a non income event. I would have to keep my money in investment for 2 years and would receive income from this . I told them that i already had 2000 shares of XOM and 2 rental properties so i did not need any more exposure to these sectors. They were insistent that this was a wise tax move and would lower my RMDs without having to pay tax on money i invested in them .
I may have misstated some of what was purported but it was a 'new' partnership and would be used to declare loss with Schedule K (?) .
My Question :
Does this make sense as it seems to be a bit shaky and investing in a few dozen producing oil wells in an out of favor industry (oil/gas) ?
Can i really null out the IRA distribution with a Tax Loss in the Oil/Gas partnership (Schedule K) ?
Even if Taxable income is Nulled out wouldn't my IRMAA be impacted as that seems to account for all income ?
They made light of Fee Only CFPs saying they had 'no skin in the game' and only Wealth Managers that charged Expense Ratios on AUM would have the investors interest at heart .
Any thoughts on this ?
Blessed be the Bogleverse .
The worst mistake I ever made was to allow tax considerations to steer my investment decisions.

Cost me a lot of money.

This is a huge financial commitment ($1m) given size of your portfolio. I don't think these sorts of things should be more than 10% of total financial assets (excluding primary residence).

I think you would be better off paying the tax.

Yes Oil & Gas are out of favor as "old economy" sectors. Yes oil prices are high right now (and gas, too). But you won't have control over where this invests. How successful it is will be by chance. It's likely that there are large management and other fees.

EDIT. If not clear, I don't think it's a good idea to stock pick. I think that it's better than signing on to what is nearly a blind trust - where you have no control over realisations of money or whether you get your money back at all.

The former Enron business, EOG, is an extremely well run company focused on oil from shale formations. Quality play. They aim to make money at even low oil prices. Other stocks will do better when the oil price is high, but EOG will still be around when it is low. Wish I'd bought the stock.

You might be better off with a holding in EOG than in direct well investing.
Last edited by Valuethinker on Thu Nov 25, 2021 9:33 am, edited 1 time in total.
EdNorton
Posts: 325
Joined: Wed Jan 02, 2019 11:11 am

Re: Oil and Gas Opportunity question

Post by EdNorton »

If you take $1M from an IRA and invest in the partnership, losses will not offset any income. That's assuming the investment stays in the IRA. Run away.
:sharebeer
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho
Exchme
Posts: 625
Joined: Sun Sep 06, 2020 3:00 pm

Re: Oil and Gas Opportunity question

Post by Exchme »

It's outrageous for your attorney to feed you to the sharks. Fire him and go to review sites and tell folks there what he did, it may be worth filing a complaint with the bar as well. The least you can do is protect others from this monster.

Sounds like a Master Limited Partnership. These are prospects that cannot get funded any other way than by going to the retail market (you). That makes the money very expensive for them compared to a bank. Now ask yourself if the banks all refused to fund the prospects, why do you think it's a good idea for you to jump in? It won't just be a tax loss they deliver, it' likely to be a total loss. In short, it's a scam.

My dad got sucked into similar things in the 80's and a friend got sucked in the 90's even after I warned him of my dad's experience. Both lost 90+% of what they invested and you will too. You have no obligation to them, don't contact them any more and if they contact you, tell them to stuff it.
Shallowpockets
Posts: 2140
Joined: Fri Nov 20, 2015 10:26 am

Re: Oil and Gas Opportunity question

Post by Shallowpockets »

Please, do not be a fool, or fooled.
They have already have a hook in you. Friend of a friend type stuff and the fact you are posting here about it means you are considering it.
Do not.
Be aggressive in a NO to this and to them. Get rid of the attorney. He is now the pipeline for the hawkers of this. They will be pestering you for a considerable amount of time now.
Unless you are adamant, you will be sucked in.
You will not sleep well at night and you will not have any way to see what your money is doing or where it is.
Could you sleep at night? Because maybe that alone will veer you away from this stuff. Are you sleeping at night now, since this came up in your life?
dukeblue219
Posts: 2225
Joined: Fri Jan 29, 2016 12:40 pm

Re: Oil and Gas Opportunity question

Post by dukeblue219 »

Find a new attorney. Ask your next prospective attorney what he or she thinks of such a practice.
z3r0c00l
Posts: 2636
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Oil and Gas Opportunity question

Post by z3r0c00l »

I never get these people who have great schemes and need your money, if the investment was so good why would anyone tell others about it?
The former Enron business, EOG, is an extremely well run company...

You might be better off with a holding in EOG than in direct well investing.
Man you came to be talked out of bad ideas and got another bad idea to boot. EOG is the stock that went from $131 to $34 a share from 2018-2020 and has only recently regained 2014 levels. If you want to invest in something alternative, just buy another rental property. Better to pay taxes eventually than to lose a bigger chunk of your retirement savings trying to avoid them.
75% Global Stocks / 25% I-Bonds
Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Oil and Gas Opportunity question

Post by Chip »

Valuethinker wrote: Thu Nov 25, 2021 3:45 am The worst mistake I ever made was to allow tax considerations to steer my investment decisions.

Cost me a lot of money.
I know someone that did that, with the same results. I see him regularly in the mirror. My particular poisons were real estate limited partnerships.

OP, if you haven't heard it enough already, RUN away.
fabdog
Posts: 1855
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Oil and Gas Opportunity question

Post by fabdog »

I have been working with Attorney on Wills, POA , Medical directives etc .
Attorney wanted me to meet with her Father in Law & Husband and CPA .
Did you ask the lawyer for investment/tax advice, or ways to structure your investments? If not, they had no business "referring" you to the husband/FIL for anything, much less this...

That sounds like how they were going to "reduce" your RMD's, by having you take a big chunk out, invest with them, and have the K1 loss wipe out your IRA withdrawal

This doesn't sound like an MLP, most of those are publicly traded. This sounds like a partnership investing in specific wells and rental properties...
As the others have noted.... run! as fast as you can! If you are still in the least tempted ask how much the sponsors/promoters are raking off the top to "set up" this deal

If you have gotten what you needed from the attorney, I would just cut them off and never speak with them again. I would post reviews so others can be aware of the "services" on offer.

If you hadn't asked for advice, I'd consider filing a report to the state bar as well

Mike
Valuethinker
Posts: 43385
Joined: Fri May 11, 2007 11:07 am

Re: Oil and Gas Opportunity question

Post by Valuethinker »

z3r0c00l wrote: Thu Nov 25, 2021 8:35 am I never get these people who have great schemes and need your money, if the investment was so good why would anyone tell others about it?
The former Enron business, EOG, is an extremely well run company...

You might be better off with a holding in EOG than in direct well investing.
Man you came to be talked out of bad ideas and got another bad idea to boot. EOG is the stock that went from $131 to $34 a share from 2018-2020 and has only recently regained 2014 levels. If you want to invest in something alternative, just buy another rental property. Better to pay taxes eventually than to lose a bigger chunk of your retirement savings trying to avoid them.
I was being a bit whimsical, thinking from my active management days as to the best way to "play" US oil and gas production from shale regions.
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BolderBoy
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Re: Oil and Gas Opportunity question

Post by BolderBoy »

oembogle wrote: Wed Nov 24, 2021 9:28 pm Any thoughts on this ?
Investing Rule #1: If you don't understand it, don't do it.

I have no idea what they are pitching to you.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
quattro73
Posts: 45
Joined: Sun Jun 20, 2021 2:07 pm

Re: Oil and Gas Opportunity question

Post by quattro73 »

The best way to play O&G for an individual investor is to own land and the subsequent mineral rights decades ago, and have yourself or your heirs get completely lucky that those rights have proven reserves. Basically luck.

Beyond that, if you are buying active wells or mineral rights and/or working interests you are making a bet that you know the amount of remaining reserves, cost to extract remaining reserves, and future commodity prices. You are offering the current owner a lump sum now to take their position (discounted future cash flows).

Prices are up right now especially with natural gas, and the offers are starting to flow from companies that buy existing production in your active shale plays. Some of these companies that are buying rights have knowledge of future drilling in certain areas ( or likelihood of future drilling), and they use that to tailor offers to mineral right owners who may have less knowledge or have seen existing checks dwindled over the years so a decent lump sum is attractive. Maybe they will be successful. Maybe prices recede and the economics fail, but at least you have that tax loss!

Personally I hate taxes, but I never understood the concept of how losing or spending money and being able to write off a portion is superior to making money and having to pay a percentage.

Best of luck if you decide to pursue.
Topic Author
oembogle
Posts: 21
Joined: Wed Apr 03, 2019 12:33 pm

Re: Oil and Gas Opportunity question

Post by oembogle »

My Fellow Bogelians
Thanks for your responses .
I agree with you .
This "Opportunity" is mostly for them to sell me something that is illiquid and speculative.
Even if it conforms to the letter of the law it is speculative and opaque.
The more i think about it the more i realize this does not sound right .
I will steer clear of this and part ways with the lawyer once they have finalized the wills /etc/ .
Thanks All.
dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Oil and Gas Opportunity question

Post by dbr »

oembogle wrote: Thu Nov 25, 2021 1:37 pm My Fellow Bogelians
Thanks for your responses .
I agree with you .
This "Opportunity" is mostly for them to sell me something that is illiquid and speculative.
Even if it conforms to the letter of the law it is speculative and opaque.
The more i think about it the more i realize this does not sound right .
I will steer clear of this and part ways with the lawyer once they have finalized the wills /etc/ .
Thanks All.
It has to be disappointing that you can't transact a legal service for wills etc. without someone trying to con you into a horrible deal like that.
000
Posts: 6033
Joined: Thu Jul 23, 2020 12:04 am

Re: Oil and Gas Opportunity question

Post by 000 »

oembogle wrote: Thu Nov 25, 2021 1:37 pm My Fellow Bogelians
Thanks for your responses .
I agree with you .
This "Opportunity" is mostly for them to sell me something that is illiquid and speculative.
Even if it conforms to the letter of the law it is speculative and opaque.
The more i think about it the more i realize this does not sound right .
I will steer clear of this and part ways with the lawyer once they have finalized the wills /etc/ .
Thanks All.
I probably wouldn't want to use their finalized wills.
Capitulation of bears is part of the market topping process.
Grt2bOutdoors
Posts: 24272
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Location: New York

Re: Oil and Gas Opportunity question

Post by Grt2bOutdoors »

000 wrote: Thu Nov 25, 2021 5:37 pm
oembogle wrote: Thu Nov 25, 2021 1:37 pm My Fellow Bogelians
Thanks for your responses .
I agree with you .
This "Opportunity" is mostly for them to sell me something that is illiquid and speculative.
Even if it conforms to the letter of the law it is speculative and opaque.
The more i think about it the more i realize this does not sound right .
I will steer clear of this and part ways with the lawyer once they have finalized the wills /etc/ .
Thanks All.
I probably wouldn't want to use their finalized wills.
+1. You hit the nail on the head. Pay the current lawyer the remainder of fees owed, and find someone more reputable to handle your estate documents.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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