Natural Gas Investments: How Domestic Drilling and Operating Helps You Profit from Oil and Gas Wells
Key Takeaways
- Natural gas remains a cornerstone of U.S. energy, supplying roughly 40% of electricity generation and supporting growing demand from power plants, industrial facilities, and LNG export terminals through 2035 and beyond.
- Modern oil wells in key U.S. basins like the Permian, Eagle Ford, and Anadarko often produce both crude oil and associated natural gas, creating two revenue streams from a single investment.
- When you partner with Domestic Drilling and Operating on an oil and gas well, you automatically participate in the well’s natural gas production and cash flow without needing a separate gas-only investment.
- Direct well participation offers unique U.S. tax advantages—including intangible drilling cost deductions and depletion allowances—that are not available through natural gas stocks or ETFs.
- The combination of domestic resource depth, mature infrastructure, and multi-commodity production supports a compelling long-term case for carefully structured well investments.
The natural gas industry has evolved from treating gas as an inconvenient byproduct to recognizing it as one of the most valuable energy sources in the American economy. For individual investors looking beyond traditional energy stocks and volatile futures markets, direct participation in oil and gas wells offers something different: the opportunity to earn from both oil production and natural gas production through a single investment.
This guide is for accredited investors and individuals interested in direct participation in U.S. oil and gas wells. Understanding natural gas investment is crucial as the energy sector evolves and new opportunities emerge for portfolio diversification and tax advantages.
This guide explains why natural gas investment matters in today’s energy landscape, how Domestic Drilling and Operating structures opportunities that automatically include natural gas exposure, and what you need to know before committing capital.
A Fuel of Choice for the U.S. Energy Mix
Plentiful U.S. Supply and Advanced Production Capabilities
Scale of U.S. Natural Gas Resources
The scale of U.S. natural gas resources is staggering. At today’s consumption rates, the country holds many decades of technically recoverable gas—some estimates suggest over 100 years of supply at current production levels.
Technological Advancements in Production
Horizontal drilling and hydraulic fracturing transformed basins like the Marcellus, Haynesville, Barnett, and Permian Basin into world-class gas and associated-gas plays. These technological advancements unlocked reserves that were previously considered economically viable only at much higher prices.
Key milestones in U.S. natural gas production:
Around 2011–2012, the U.S. passed Russia to become the world’s largest natural gas producer
Production reached approximately 104 billion cubic feet per day in 2024
Export capacity expanded dramatically with new LNG terminals on the Gulf Coast
The global supply picture shifted as U.S. gas became available to international markets
Infrastructure and Market Access
This mature infrastructure—pipelines, processing plants, storage facilities, and gathering systems—allows Domestic Drilling and Operating to connect new wells to market efficiently. When a well comes online, the path to revenue is already established.
Abundant resources plus modern drilling technology creates a predictable operating environment for well-level investments, even as commodity prices move up and down with market volatility.
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Efficiency, Cost Advantage, and Export Growth
Why Natural Gas with Domestic Drilling and Operating Is Different
Direct Participation and How Investors Earn from Natural Gas
Investors can gain exposure to natural gas through stocks, ETFs, futures, options, and direct participation programs (DPPs). Direct participation allows investors to directly participate in the income and gains from natural gas and oil investments, while mutual funds and ETFs offer diversified exposure to natural gas companies.
Direct Participation Programs (DPPs) allow investors to directly participate in the income and gains from natural gas investments. DPPs and working interest structures are commonly used for oil and gas well investments in the United States. These structures differ fundamentally from buying shares in companies or trading commodity futures.
Under these arrangements, investors typically own a percentage working interest or similar interest in specific wells or drilling programs operated by Domestic Drilling and Operating.
Basic cash flow waterfall:
- Production is sold to purchasers at market prices
- Revenue flows from purchasers to the operator
- Lease operating expenses and severance taxes are deducted
- Any agreed management or operating fees are deducted
- Remaining revenue is allocated to investors based on their percentage interest
Exact terms depend on specific offering documents, which investors must review carefully. But the core concept remains consistent: your investment in the well entitles you to a share of everything that comes out of the ground.
Tax Advantages of Oil and Natural Gas Well Investments
U.S. federal tax law often treats direct oil and gas investments favorably compared to many other asset classes. These benefits are not available through public natural gas stocks or exchange-traded products.
Intangible Drilling Costs (IDCs)
IDCs include costs like labor, drilling mud, and certain services that can typically be deducted in the year incurred. For many investors, this means potentially offsetting 70–80% of initial capital against active or passive income (as allowed by individual tax situations).
Tangible Drilling Costs
Equipment like casing and wellhead components are generally depreciated over time, providing additional deductions across several years of the project. Percentage Depletion Qualified investors may deduct a percentage (often 15%) of gross revenue from producing wells each year, subject to IRS rules and individual circumstances. This provides ongoing tax benefits throughout the life of the well.| Tax Benefit | See our gallery of work on energy development and drilling operations. | Typical Impact |
|---|---|---|
| IDC Deduction | Year 1 | 70-80% of investment potentially deductible |
| Tangible Depreciation | Years 1-7 | Remaining costs spread over time |
| Percentage Depletion | Ongoing | 15% of gross income tax-advantaged |
Key Risks of Natural Gas and Well-Level Investing
While natural gas investments can be rewarding, they involve real risks that investors must understand and accept before committing capital. Key Risks to Consider:- Commodity Price Risk: Both natural gas and oil prices can be volatile. Weather patterns, geopolitical events, supply shocks, and changes in demand all influence pricing. A warm winter can collapse natural gas prices, while a cold snap can send them soaring.
- Operational and Geological Risk: Wells may underperform initial projections, experience mechanical issues, or incur higher-than-expected costs. Even with advanced 3D seismic and proven reserves, some wells produce less than expected.
- Regulatory and Environmental Risk: For recent developments relevant to oil and gas markets, see the WTI Crude Oil Price Surges 3% as Global Supply Tightens article. Changes in drilling regulations, flaring rules, pipeline permitting, and environmental compliance can impact project economics. Some states have restricted hydraulic fracturing, while others have tightened methane emissions rules.
- Illiquidity Risk: Direct participation in wells is typically illiquid. Unlike stocks that trade daily, you cannot quickly sell your interest on an exchange. Investors should assume their capital will be tied up for years and should only invest funds they can afford to commit long-term.
- Other factors to consider: Operator default risk (mitigated by working with experienced operators), infrastructure constraints affecting ability to move production to market, and changes in federal energy policy affecting demand for natural gas.
Current Outlook for Natural Gas-Focused Oil and Gas Wells
The next 5–10 years present a complex but generally supportive environment for natural gas investment, though no one can guarantee future results.
Key Demand Drivers
Demand drivers expected to persist:
Power generation: Data centers and AI could add 5–10 billion cubic feet per day of demand by 2030
Petrochemicals and fertilizers: Increasing demand for feedstocks
LNG exports: Ongoing build-out of Gulf Coast export capacity
Industrial processes: Manufacturing and processing needs
LNG Export Expansion
The ongoing construction of LNG terminals increases the linkage between U.S. wellhead gas and global prices. Each new export terminal creates additional demand for domestic production.
Infrastructure Advantages
Domestic Drilling and Operating positions projects to tap into this durable demand by targeting basins with strong gathering and pipeline access and long productive lives. Wells in the Permian Basin, for instance, benefit from extensive midstream infrastructure already in place.
The combination of domestic resource depth, infrastructure, and multi-commodity (oil plus gas) production supports a compelling long-term case for carefully structured well investments. The energy transition is real, but so is the need for reliable natural gas supply during the decades-long shift.
How to Get Started Investing in Oil and Gas Wells with Natural Gas Exposure
If you’re considering direct participation in oil and gas wells, here’s a practical overview of the process.
- Confirm Investor Status
Many direct participation offerings require accredited investor status. The SEC defines this as:- Income exceeding $200,000 ($300,000 with spouse) for the past two years
- Net worth exceeding $1 million excluding primary residence
- Request Offering Documents
Contact Domestic Drilling and Operating to receive the Private Placement Memorandum (PPM) or offering documents for current investment opportunities. - Conduct Due Diligence
Review key elements including:- Reserve and production estimates
- Fee structures and expense allocations
- Operator track record and experience
- Basin and well-specific geology
- Projected oil versus gas production ratios
- Expected cash flow timing
- Ask Specific Questions
Good questions to ask Domestic Drilling and Operating:- What percentage of production is expected to be natural gas vs. oil?
- What price assumptions underlie the projections?
- How long until first distribution is expected?
- What are the ongoing operating costs?
- Consult Professionals
Speak with your financial advisor and tax professional before allocating capital. Ensure the investment fits your broader portfolio, risk tolerance, and tax strategy.
The trade-off with direct well investment is clear: greater potential returns and tax advantages, but also greater complexity and less liquidity than buying Kinder Morgan stock or a natural gas ETF.
Frequently Asked Questions (FAQ)
If I invest in an oil well with Domestic Drilling and Operating, do I have to make a separate investment to profit from natural gas?
No separate investment is usually required. When you participate in a Domestic Drilling and Operating oil and gas well, you generally receive your share of all hydrocarbons produced by that well, including natural gas and natural gas liquids, according to the interest defined in the offering documents.
How often are natural gas revenues from wells typically distributed to investors?
Distribution schedules vary by project and operator. Domestic Drilling and Operating commonly aggregates and distributes investor revenue on a monthly or quarterly basis after purchasers pay for production and operating expenses are deducted. Exact timing and procedures are detailed in each offering’s documentation.
Can I invest in these wells through an IRA or other retirement account?
Many investors use self-directed IRAs or similar vehicles to hold oil and gas interests, but rules are complex. Custodians must allow alternative assets, and UBTI (unrelated business taxable income) rules may apply. Seek guidance from a qualified tax and retirement specialist before proceeding.
What happens to my natural gas income if prices fall sharply?
Lower natural gas prices reduce revenue per unit sold, which can shrink cash flow. Some projects remain economically viable at lower prices because of low operating costs and accompanying oil and NGL revenue, but investors must be prepared for periods of reduced distributions during price downturns.
Is a natural gas-linked well investment safer than buying natural gas futures or leveraged ETFs?
Each approach has different risk profiles. Natural gas futures and leveraged ETFs can be highly volatile and require active trading expertise. Direct well investments are illiquid, long-term, and exposed to operational risk. However, well investments through Domestic Drilling and Operating are backed by physical production and may provide tax benefits that financial instruments do not offer. Neither approach is inherently “safer”—they simply involve different types of risk that suit different investor profiles.