Some forms of oil and natural gas investments, including royalty investments, qualify for 1031 exchange treatment.
Oil and natural gas investing, like other real assets, can provide a protective hedge to inflation. While lower oil and gas production could negatively impact returns, oil and gas can perform better than traditional stocks and bonds in an economic downturn or during periods of excess inflation. In a positive energy market, as the price of oil or natural gas increases, so would the amount paid to the royalty owner.
Several different avenues are available for oil and gas investors. These can be broken down into several major categories: royalty interests, mutual funds, partnerships, working interests and drilling programs. Each has a different risk level and separate rules for taxation.