Why do distributions from a partnership vary or fluctuate in value?
There are three primary components that determine the amount of distributions available for payment to investors. The three primary components are the volume of production, the price of natural gas and oil, and the amount of the operating expenses as discussed below:
1. Volume of Production: The volume of oil and/or gas that a well produces monthly and throughout its productive life varies substantially from well to well and from region to region. Also, the production from a well declines throughout the life of the well (the “decline curve”). The higher the volume, the more energy available for sale.
2. Commodity Prices: A partnership’s revenues are directly related to the sale of natural gas and oil and its price, which is volatile and uncertain. If natural gas and oil prices decrease, then your investment return will decrease. For example, the price that a partnership receives for the sale of its natural gas is a blended price which reflects the price per mcf (1,000 cubic feet) that a program receives for individual wells on specific meters based on their geographic location.
3. Operating Expenses: The partnership will incur expenses in the operation of the wells and the administration of the offering such as administrative fees which are fixed for the life of the partnership. Operating and production expenses include items such as drilling, labor, engineering, equipment leasing, water hauling, meter reading and other fees that enable the well to produce economically; partnership expenses could include check printing, year-end tax preparation and audit expense, etc.
This material is neither an offer to sell nor a solicitation to buy any security. Such an offer can only be made by the prospectus or offering memorandum, which contains complete information including risks such as potential conflicts of interest, lack of liquidity, risks associated with leveraging the investment, and potential adverse economomic and regulatory changes. Centaurus Financial does not give personalized tax, legal, or accounting device. Please consult with your tax advisor for an opinion regarding your specific tax situation.
If you are choosing a financial advisor and true independence is important to you, please contact our home office at (714) 456-1790 or email us: email@example.com. Our home office team will pair you with a top broker or one of the best financial advisors available to meet your needs. For more information about our privately-held broker/dealer and investment advisory firm, see www.centaurusfinancial.com.
[Advisors: Looking for a new “business partner”? Please visit www.joincfi.com.]