Energy Exploration International - EEI Inc

Understanding Your Investment

Investing in the Oil & Gas Industry can be done in a number of ways and should be done carefully. It is important for any investor to understand the financial rewards, the tax benefits and the risks associated with each specific project. EEI prides itself on keeping the process simple, efficient and exciting.

Potentially High Returns

The returns generated from investing in Oil & Gas drilling projects can be extremely high. EEI can assist in determining the range of potential monthly income, cash-on-cash Payout (in months) and annual Return-On-Investment (ROI).

Potential Tax Benefits

The U.S. Congress has offered enormous tax benefits to investors in Oil & Gas projects. While every investor should consult their own tax attorney or accountant to determine their specific tax situation, generally one can write off up to 85% of the initial investment from federal income taxes(and amortize the remaining portion) while enjoying a 15% tax exemption from federal income taxes on all revenue received from the project. If a project is deemed not commercially viable, then up to 100% of that investment may be written off from federal income taxes for that calendar year.

Potential Risks

There are always risks involved with any investment. Oil & Gas is no different. In fact, in some cases there may be substantially more risk with Oil & Gas than with other investments. EEI cannot accurately predict the outcome of any project. While the technology has improved over the last few decades, there is always a chance that any single well may be dry and the investment made to that point may be lost. EEI thoroughly analyzes every project to determine the likelihood of success and will articulate to an investor very clearly what research has been done and by whom.

Suitability Standards

Drilling for natural gas and oil can be very exciting. However, prudence must be exercised. Not all those who want to participate in exploration activities can or should participate in such activities. EEI has certain suitability standards that must be met before an investor is allowed to invest. EEI reserves the right to accept or deny participation requests in any projects for which it acts as General Partner. To find out if you qualify, please contact EEI to speak with one of our registered representatives.

Tax Benefits

Congressional Incentives Encourage Domestic Petroleum Development

The U.S. Congress has provided tax incentives to stimulate domestic natural gas and oil production financed by private sources. Drilling projects offer many tax advantages and these benefits can greatly enhance the economics. These incentives are not "Loop Holes" -- they were placed in the Tax Code by Congress to make participation in oil and gas ventures an excellent tax advantaged investment.

Intangible Drilling Cost Tax Deduction

The intangible expenditures of drilling (labor, chemicals, mud, grease, etc.) are usually the majority (65% to 85%) of the cost of a well. These expenditures are considered Intangible Drilling Costs "IDCs", which are generally 100% deductible from federal income taxes during the first year. For example, a $100,000 investment could typically yield up to $75,000 in tax deductions during the first year of the venture. These deductions are available in the year the money was invested, even if the well does not start drilling until March 31 of the year following the contribution of capital. (For more information please see Section 263 of the Tax Code.)

Tangible Drilling Cost Tax Deduction

The total amount of the investment allocated to the equipment, or Tangible Drilling Costs "TDCs", are 100% tax deductible through depreciation . In the example above, the remaining tangible costs ($25,000) may be deducted as depreciation over a seven-year period. (For more information please see Section 263 of the Tax Code.)

Alternative Minimum Tax

Prior to the 1992 Tax Act, working interest participants in oil and gas ventures were subject to the normal Alternative Minimum Tax to the extent that this tax exceeded their regular tax. The 1992 Tax Act specifically exempted Intangible Drilling Cost as a Tax Preference Item. "Alternative Minimum Taxable Income" generally consists of adjusted gross income, minus allowable Alternative Minimum Tax itemized deduction, plus the sum of tax preference items and adjustments. "Tax preference items" are preferences existing in the Tax Code that can greatly reduce or eliminate regular income taxation. Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage and the wells thereon.

The information contained herein is not, and is not intended to be legal or tax advice. All interested parties should consult their own tax advisors.