Energy Alternative Investments DRILLING FUNDSDrilling Funds are designed to 1) generate significant tax deductions, particularly in the year ofinvestment, which can be used to offset taxable income from earned or unearned income and 2) tocomplete the drilling of wells to generate cash flow potential to the investor.There are many variables that can impact the economic success of these Funds including commodityprices and drilling success.LEASEBANK FUNDSA Leasebank is an investment fund formed to acquire oil and gas leases, add value in those leases byvarious means (performing geological studies, drilling pilot wells, etc.), and then sell the leases at aprofit. Typically, the leases have a primary term that ranges from 3-5 years. If production is establishedby drilling well, the leases continue in effect as long as production in commercial quantities continues.Once the leases are purchased, value may be added by a number means including 1) generating andinterpreting geological and geophysical data that serves to demonstrate the likelihood of findinghydrocarbons; and 2) drilling wells based on the interpretation of such data. The methods used tointerpret data may include 2-D or 3-D seismic data, well logs, and production data from nearby wells,among other various techniques.After the leases have been purchased and enhanced as indicated above, they may be sold to thirdparties such as independent oil companies, institutional investors, or drilling funds. Sale considerationusually consists of up-front cash and may include some form of retained economic interest. The retainedinterest generally includes a carried working interest whereby the purchaser of the leases pays for someor all of the Leasebank owners’ interest in drilling, completing and equipping one or more wells, and/oran overriding royalty interest.With respect to timing of revenue to the Leasebank Fund, revenue from pilot well drilling usuallycommences within 12-18 months following the closing of the fund offering. Capital gains proceeds fromthe sale of acreage may occur within 24-36 months of closing.ROYALTIESA royalty is a percentage of the revenue paid to a mineral owner from the production of oil and gas onhis/her property.The Operator, often a NYSE company, drills wells in order to produce oil and gas. ThisOperator pays all drilling and operating expenses; and it also assumes all operating risks and liabilities.The royalty owner collects payments based on the monthly gross revenue from the sale of the oil andgas.The royalty interests that we have access to have the following important characteristics:Direct title which allows investor to sell or transfer when desired.Eligible for 1031 and 1033 real estate exchange.No debt associated with the investment.Ordinarily engineering reports support estimated 35-year life for reserves. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. Have a Question About This Topic? Name Email Address Phone Question Thank you! Oops!