Gulf Coast Westerns Steve Ziemke Explains How Oil and Gas Investments Hedge Risk
While most investors build wealth through investments and real estate, these avenues alone may not be enough to diversify portfolios against risk. The stock market is volatile today, which makes it more difficult for investors to see reliable returns. This is why accredited investors often look for alternatives that could offer higher potential returns while diversifying their overall portfolio.
According to Gulf Coast Western’s Senior Vice President, Steve Ziemke, oil and gas joint ventures are one of the alternative investments for those who need to diversify their holdings. “The stock market is volatile, but oil is at a strong level. So, if our wells can perform and we hit our goals , that’s a great way to help offset risk,” he says.
With the professional guidance of sales experts like Ziemke, these ventures give accredited investors a chance to participate in the exploration and production of oil and gas reserves alongside experienced operators and investors. While all investments carry an element of risk, alternative ones like oil and gas joint ventures can present a lot of upside to accredited investors while generating tax savings.
Steve Ziemke explains how alternative investments work, as well as the reasons why accredited investors often turn to oil and gas.
Why Accredited Investors Opt for Alternative Investments
An alternative investment is a type of investment that isn’t accessible through typical means, like the stock market. This includes dealings in real estate, private equity, venture capital, or hedge funds.
Accredited investors are often interested in alternative investments because they have a greater risk tolerance and can afford to take on more risk for potentially higher returns. Alternative investments can help accredited investors create more balanced portfolios by offering exposure to asset classes with little to no correlation to traditional stocks and bonds.
However, it’s important to note that alternative investments come with their own set of risks and considerations. As with any investment, it’s important to research and understand the risks and potential returns before opting in.
There are plenty of alternative investments available to accredited investors, but according to Ziemke, oil and gas joint ventures can be a fitting long-term venture for the right investors.
Balancing Risks and Rewards With Gulf Coast Western Joint Ventures
Steve Ziemke has been with Gulf Coast Western since 2008. As a sales leader at his company, it’s Ziemke’s job to communicate with accredited investors and help them generate potential monthly income — all while finding aggressive tax advantages. “I educate them on what the oil and gas investment’s all about, what it can do for them from an investment standpoint, a tax strategy standpoint, and to help them think about the future outside the stock market,” he says.
While oil and gas joint ventures can certainly help investors diversify their money, it isn’t for everyone. “Oil and gas can be risky; it’s just not everybody’s cup of tea,” Ziemke says. Through a series of phone calls, Steve Ziemke screens potential investors who are interested in taking on an oil and gas venture. For these investors, Ziemke says oil and gas joint ventures can be a novel way to diversify their investments for several reasons.
The Demand — And Price — For Oil Is Increasing
With well over two decades experience in oil and gas — as well as an MBA — Ziemke is optimistic about the future of fossil fuel investments.
Global and domestic demands are increasing as various industries increase their productivity to meet customer demands. This trend is holding steady not only in the United States, but on a global level. In fact, the International Energy Agency estimates that demand for oil will climb to 101.9 billion barrels per day in 2023.
While alternative energies like solar, wind, and electric cars are gaining traction, they still pale in comparison to the world’s demand for oil and gas. Steve Ziemke believes consistent access to oil and gas is key to maintaining American independence. “I think the importance of energy in this country relates to the impact of how the U.S. is growing, how the demand is growing, and as a result how the alternative investments are growing alongside,” he says. “There is such a demand, and it’s increasing as we come out of where we’ve been in the economy. As the population grows, the demand for oil and gas will continue to increase.”
Oil and Gas Is Independent of the Stock Market
Oil and gas investments have a low correlation to the stock market, which can help to diversify an investor’s portfolio and reduce overall portfolio risk. While many investors don’t understand the inner workings of oil and gas investments, Ziemke uses his communication skills to educate investors on how oil and gas operates independently of the stock market.
“The importance for investors to understand that this is a different investment bucket. This is a long-term investment,” Ziemke says. “It helps augment and complement a client’s overall portfolio by having them in a different kind of strategy outside of the stock market, which is where most of their assets are.”
While investing in the stock market is generally an investment best practice, high-net-worth investors often want to reduce the liability of investing too much in stocks. Plus, participating in the stock market doesn’t offer the tax advantages that come with oil and gas joint ventures. The tax advantages are very high in oil and gas partnerships with most of the investment tax deductible in the first year, even if a client is receiving potential monthly cash flow from the wells. In addition, the Depletion Allowance provides that 15% of the well revenue is tax-free.” Steve Ziemke explains. That can make a big difference for wealthy, accredited investors.
Joint Ventures Allow For More Tax Advantages and Control
According to Ziemke, buying shares in a public oil and gas company isn’t the same as drilling wells through a joint partnership with firms like Gulf Coast Western. “It’s a joint venture; it’s a general partnership,” Ziemke explains. “The reason our clients like that is because, unlike a limited partnership, they get the most aggressive tax deductions.”
Unlike simply buying stock in an oil and gas company, accredited investors become part-owners of a joint venture. These joint ventures involve a partnership with a group of accredited investors. But since this is a general partnership, investors also have more control over the direction of the partnerships than they would in a typical limited partnership.
“If anything happens within the project, whether it’s having drilled the wells and now we have to complete them, or something within the joint venture, the partners have to vote for it to pass. It requires a 51% majority vote.” Ziemke believes in supporting investors at every stage of the process and educating them about proposed changes so they can make informed decisions.
Investing in the Future: The Potential of Oil and Gas Joint Ventures
In Ziemke’s experience, oil and gas joint ventures require balancing risks versus rewards. His firm only works with accredited investors, which gives experienced investors more opportunities for alternative investments.
The oil and gas industry continues to boom in the United States. Opting for alternative investment opportunities in this industry could allow investors to diversify their investments in a tricky market. For accredited investors, Ziemke believes oil and gas is one of the best potential ways to grow long-term wealth independent of the stock market while enjoying tax advantages. The key is to work with experienced professionals with a proven track record in oil and gas, which equips investors with the tools to make better long-term decisions.