Oil and gas royalty investments

Is an investment in an oil and gas limited partnership a passive activity?

If you only hold a limited partnership investment, yes, it is a passive activity. If you hold a general partnership unit, generally your liability is not limited and the activity would not be passive, regardless of your participation. What we see most often is that when these investments begin, the investor will own both a general partnership unit(s) and a limited partnership unit(s). This is great for you also. If you are both a general and a limited partner in a partnership that owns a working interest, your entire interest in each well drilled under the working interest is treated as an interest in a non-passive activity, whether or not you materially participate. Visit www.uniroyalties.com

Find out exactly what you're investing in. Is it a working interest? If so you have to pay the expenses of the wells before you get any profits. That may include expensive work overs on the wells. If it’s a royalty interest you pay no expenses and get about 3/16 of the oil and gas produced. The royalties are highly dependent on oil and gas prices and how much the wells produce. If oil and gas prices drop marginal wells may be shut down. Wells may also go dry and new ones must be drilled. Few years ago, I had joined with Viking Investment one of my project and got profit on it.