2025 – An Insider’s View on 4 Ways to Invest in Oil & Gas

May 27, 2025

2025 – An Insider’s View on 4 Ways to Invest in Oil & Gas

This report was prepared to help advisorscommunicate with clients about the diverse methods available to invest in oiland gas (O&G) in 2025. With decades of experience advising oil and gas executives,our team offers insights into the evolving landscape of energy investments.Below, we explore four primary strategies, from ETFs to Direct Investing, eachwith distinct benefits depending on client objectives and risk tolerance.

ETF’s: A Simple Gateway to Oil Exposure

Exchange-traded funds (ETFs) provide astraightforward way to gain exposure to the oil market. They come in four maincategories:

  1. Oil Price ETF’s: These ETFs track     the price of crude oil futures contracts, offering short-term trading     opportunities but often exhibiting high volatility.
       
    • USO (United States Oil Fund):      Tracks short-dated WTI futures, with high liquidity but significant      volatility.
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    • DBO (Invesco DB Oil Fund): Invests      in longer-dated futures contracts, offering a less volatile alternative.
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    • Recommendation: Combine USO (20%)      and DBO (80%) for flexibility in short-term trades and longer-term      exposure.
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  3. Sector-Specific ETF’s:
       
    • Upstream (Exploration & Production): High-risk, high-reward exposure to E&P companies.      Example: PXE (Invesco Dynamic Energy Exploration & Production ETF).
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    • Downstream (Refineries):      Refineries benefit from lower crude prices, offering a stable hedge.      Example: CRAK (VanEck Vectors Oil Refineries ETF).
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    • Oil Field Services (OFS): Highly      correlated to producer capital budgets and oil price recovery. Example:      OIH (VanEck Vectors Oil Services ETF).

MLP’s: Yield and Stability

Master Limited Partnerships (MLP’s) focuson transporting oil and gas, offering high yields and moderate risk. While notdirectly tied to commodity prices, MLPs can face indirect risks through tenantbankruptcies or contract restructuring.

  • Recommendation: Dorsey Wright MLP     Select ETF (BMLP), actively managed with a concentrated portfolio of     top-performing MLPs.

Royalties: Tax-Advantaged Income

Royalties provide passive income tied tocommodity production, with exceptional tax advantages—15% of income is oftentax-free. Investors can gain exposure through:

  1. Public Royalty Trusts: Example:     Sabine Royalty Trust (SBR).
  2. Royalty MLP’s: Actively managed     portfolios with growth potential. Examples: Kimbell Royalty Partners     (KRP), Blackstone Minerals (BSM).
  3. Private Placement Royalties: For     accredited investors, offering double-digit returns with low operational     risk.

Direct Investing: Maximizing TaxBenefits and Upside

Direct investment in O&G wells offersunparalleled tax benefits, including the ability to offset Adjusted GrossIncome (AGI) through accelerated depreciation. For example, a $200,000investment can yield $65,000–$80,000 in tax savings in year one.

Key Considerations:

  • Sponsor alignment: Ensure the sponsor’s incentives match those     of the investor.
  • Fees and transparency: Avoid funds with excessive commissions     or opaque fee structures.
  • Technical expertise: Verify the sponsor has experienced     petroleum engineers and geologists.
  • Personal investment: Sponsors investing alongside clients     signal confidence and alignment.

Conclusion

The oil and gas sector continues to evolve,presenting both challenges and opportunities for investors. From ETFs to DirectInvesting, each method offers unique advantages tailored to specific goals andrisk profiles. Understanding these structures and conducting due diligence canhelp advisors provide optimal recommendations for their clients.

For more information or to access ourcomprehensive Tax Guide on Direct Investing, visit www.invitoep.com.