partnership consisting of one or more limited partners and one or more general partners that is structured to find, extract, and market commercial quantities of oil and natural gas.
partnership consisting of one or more limited partners and one or more general partners that is structured to find, extract, and market commercial quantities of oil and natural gas. The limited partners, who assume no liability beyond the funds they contribute, buy units in the partnership, typically for at least $5,000 a unit, from a broker registered to sell that partnership. All the limited partners' money then goes to the general partner, the partner with unlimited liability, who either searches for oil and gas (an exploratory or wildcat well), drills for oil and gas in a proven oil field (a developmental drilling program), or pumps petroleum and gas from an existing well (a completion program). The riskier the chance of finding oil and gas, the higher the potential reward or loss to the limited partner. Conservative investors who mainly want to collect income from the sale of proven oil and gas reserves are safest with a developmental or completion program.
Subject to passive income rules, limited partners also receive tax breaks, such as depreciation deductions for equipment used for drilling and oil depletion allowances for the value of oil extracted from the fields. If the partnership borrows money for increased drilling, limited partners also can get deductions for the interest cost of the loans.
