Oil and Gas Investing FAQs

Eagle Natural Resources  |  Frequently Asked Questions

This FAQ summary highlights certain information relating to the ENR Income & Development opportunities sponsored by Eagle Natural Resources, LLC (“Eagle”). It is not complete and may not contain all of the information that is important to a prospective investor. To understand any offering fully, prospective investors should carefully read the entire Private Placement Memorandum relating to the Fund offering as such memorandum may be supplemented from time to time, including specifically the Risk Factors described therein.

ENR Income & Development

Current Opportunity

What is an Oil & Gas Direct Participation Investment?

An investment in an Oil & Gas Direct Participation Fund allows investors to participate directly in the Fund’s cash flow, which is generated by the oil and gas assets owned by the Fund. In addition, some investors may enjoy the tax benefits generated by the Fund’s activities, which could potentially be used to help reduce the individual investor’s tax burden.

For whom is Oil & Gas Direct Investment an appropriate investment?

Accredited investors seeking (1) to generate income along with opportunities for upside growth, (2) direct exposure to profit potential generated by oil and gas operations, and (3) tax advantages, may find that an investment in the Fund is an attractive diversification option to an existing investment strategy. Investors should note that oil and gas direct investing carries significant risk and there are no guarantees that any cash flow will be achieved. Please review the offering documents relating to any investment opportunity being evaluated in full prior to making an investment including specifically any Risk Factors identified therein. ACCREDITED INVESTORS ONLY

Are Eagle Natural Resources' investments available to foreign investors?

Yes. Non-U.S. residents may invest in an Eagle Natural Resources fund, subject to local securities laws.

If I invest, will I receive distributions and how often?

If a Fund’s revenues exceed its expenses, investors are expected to receive periodic distributions of the Fund’s cash profits.  Eagle expects that cash distributions to the partners will begin approximately three months after the Fund acquires or drills, completes and hooks up its first producing well, and may be made as frequently as monthly thereafter, but in any event, no less than quarterly.  The distribution amount will depend primarily on the Fund ‘s net cash receipts from oil and natural gas operations and will be affected, among other things, by the price of oil and natural gas and the level of production of the Fund’s properties.

If I invest, will I be able to sell my investment later?

There are restrictions in transferring ownership of units in the Fund; Ownership in the Fund is not a liquid investment. No public market for the units exists or is likely to develop.  You should be fully aware of the long-term nature of an investment in the Fund.  Investors will be required to represent that they are purchasing units in the Fund for their own account for investment purposes and not with a view toward resale or redistribution.  The sale of the Fund units will not be registered under the Securities Act, and the units must be held indefinitely unless they are subsequently registered under the Securities Act (which is not expected) or unless an exemption from registration is available.  Resale of the units under Rule 144 of the Securities Act within one year from the date they are fully paid will not be possible because of the absence of sufficient public information about the Partnership.  Furthermore, you may not transfer your units except as expressly permitted in the Fund’s partnership agreement

What tax advantages does Oil & Gas Direct Investing offer?

Oil and gas direct investing offers many tax advantages that can help greatly enhance economics of an investment. The following information and Internet URL are provided for your convenience and should not be construed as tax advice from Eagle.

It is the responsibility of each PARTNER to investigate the tax consequences, under the laws of pertinent jurisdictions, of his or her investment in the FUND. THE ANALYSIS HEREIN IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.  ACCORDINGLY, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH HIS OWN PERSONAL TAX ADVISOR CONCERNING (i) THE APPLICABILITY TO AND EFFECT ON HIM OF THE UNITED STATES INCOME TAX LAWS AND THEIR ADMINISTRATION, AND (ii) THE APPLICABILITY TO AND EFFECT ON HIM OF STATE, LOCAL AND FOREIGN TAX LAWS AND THEIR ADMINISTRATION.  NO LAW FIRM OR ACCOUNTING FIRM HAS PROVIDED OR OTHERWISE Rendered an opinion on the FEDERAL, state, local or foreign tax consequences of an investment in THE FUND.

The Online U.S. Tax Code may be accessed at http://www.fourmilab.ch/ustax/ustax.html

Intangible Drilling Cost Tax Deduction
The intangible expenditures of drilling (labor, chemicals, mud, grease, etc.) are usually about (65 to 80%) of the cost of drilling an oil and/or gas well. These expenditures are considered “Intangible Drilling Cost (IDC)”, which may be 100% deductible during the first year for certain qualifying investors. For example, a $100,000 investment could yield up to $80,000 in IDC tax deductions during the first year of the venture. These deductions are generally 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. (See Section 263 of the Tax Code.)

Tangible Drilling Cost Tax Deduction
The total amount of the investment allocated to the equipment “Tangible Drilling Costs (TDC)” is 100% tax deductible. In the example above, the remaining tangible costs ($20,000) may be deducted as depreciation over a seven-year period. (See Section 263 of the Tax Code.)

Active vs. Passive Income
The Tax Reform Act of 1986 introduced into the Tax Code the concepts of “Passive” income and “Active” income. The Act prohibits the offsetting of losses from Passive activities against income from Active businesses. The Tax Code specifically states that a Working Interest in an oil and gas well is not a “Passive” Activity. (See Section 469(c)(3) of the Tax Code). As such, if the Fund owns one or more working interests in one or more oil or gas leases at any time during a tax year, individual investors that own general partnership interests directly or through entities that do not limit their liabilities with respect to their units should not be subject to the passive activity loss rules with respect to such working interests for the tax year. As a result, such investors should be able to utilize losses from the Fund from such working interests to offset future income from the Fund and their other so-called “active income” (e.g., salary) and “portfolio income” (e.g., dividends, interest and royalties not derived in the active conduct of a trade or business).

Small Producers Tax Exemption
The 1990 Tax Act provided some special tax advantages for small companies and individuals. This tax incentive, known as the “Percentage Depletion Allowance”, is specifically intended to encourage participation in oil and gas drilling. This tax benefit is not available to large oil companies, retail petroleum marketers, or refiners that process more than 50,000 barrels per day. It is also not available for entities owning more than 1,000 barrels of oil (or 6,000,000 cubic feet of gas) average daily production. The “Small Producers Exemption” allows 15% of the Gross Income (not Net Income) from an oil and gas producing property to be tax-free.

Lease Costs
Lease costs (purchase of leases, minerals, etc.), sales expenses, legal expenses, administrative accounting, and Lease Operating Costs (LOC) are also 100% tax deductible through cost depletion.

Recipient – Registrant on www.EaglenNaturalResources.com

Disclosing Party – Lexstar Energy, DBA Eagle Natural Resources

Effective Date – Date of Registration

  1. Definitions.

(a) Disclosing Party and Recipient. The party disclosing Confidential Information is referred to as the “Disclosing Party,” and the party receiving Confidential Information is referred to as the “Recipient.”

(b) Confidential Information. “Confidential Information” means all information (whether in oral, written or electronic form) relating to the business, business relationship between disclosing party and recipient, personnel, marketing, customers, finances, products or services of the Disclosing Party, and includes confidential information received by the Disclosing Party from third parties.

  1. Permitted Use of Confidential Information.The Recipient must not use the Disclosing Party’s Confidential Information for any purpose without the explicit written approval of the Disclosing Party.
  2. Protect Confidential Information.The Recipient will keep the Disclosing Party’s Confidential Information confidential, and will also cause its directors, officers, employees and agents to keep the Disclosing Party’s Confidential Information confidential. The Recipient will take all necessary steps (including those steps that the Recipient takes to protect its own information that it regards as confidential) to maintain the confidentiality of the Disclosing Party’s Confidential Information.
  3. No Disclosure.The Recipient will not disclose the Confidential Information to any third party, nor the fact that it has obtained the Confidential Information, without the explicit written approval of the Disclosing Party.
  4. Legal Compulsion to Disclose Confidential Information.If the Recipient receives notice indicating that it may or will be legally required to disclose any of the Disclosing Party’s Confidential Information, it will notify the Disclosing Party promptly in writing so that the Disclosing Party may seek a protective order or other appropriate remedy, or waive compliance with this Agreement. If a protective order or other remedy is not obtained for whatever reason, or if the Disclosing Party waives compliance with this Agreement, the Recipient will disclose no more than that portion of the Confidential Information required to be disclosed.
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  6. Return or Destruction.Within five business days of a request by the Disclosing Party:

(a) the Recipient will return to the Disclosing Party all materials in physical form (including any notes, summaries or memoranda relating to or derived from those materials by the Recipient) that contain the Disclosing Party’s Confidential Information or, at the Disclosing Party’s option, the Recipient may certify in writing that it has destroyed all such materials permanently and confidentially; and

(b) the Recipient will certify in writing that it has destroyed permanently all materials in electronic form (including emails and including any notes, summaries or memoranda relating to or derived from those materials by the Recipient) that contain the Disclosing Party’s Confidential Information.

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  3. Integration.This Agreement constitutes the entire agreement between the parties relating to its subject matter. No amendment or waiver of this Agreement is binding unless agreed to in writing by the parties.
  4. Governing Law.This Agreement is governed by the laws in effect in the State of Texas.