How to Invest in Oil & Gas (2025): 13 Tips from Experts

Last updated: August 25, 2025 • ~20‑minute read

Table of contents

1. Ways to invest in oil & gas
2. Types of oil & gas companies
3. Top stocks & ETFs (2025 snapshot)
4. Are oil & gas a good investment in 2025?
5. Key risks
6. How much do you need to invest?
7. How oil & gas investments are taxed (U.S.)
8. 13 expert tips before you invest
9. FAQs

Ways to invest in oil & gas

1) Futures & options (WTI/Brent). Exchange‑traded contracts to gain direct exposure or hedge. WTI (CL) on CME is the world’s most liquid crude contract; there’s also Micro WTI (MCL, 1/10th size) for smaller margin footprints.  

2) Energy ETFs & mutual funds. Low‑maintenance exposure to diversified energy equities (e.g., XLE, VDE, XOP) or global energy (IXC). These typically issue a 1099 (not a K‑1).    

3) Commodity ETPs. Products like USO track oil futures rather than owning energy stocks and are structured as commodity pools that send investors a Schedule K‑1. Know the tax differences.    

4) Individual equities. Buy shares of integrated majors, E&Ps, midstream pipelines, refiners, or oilfield services companies via any brokerage.

5) Royalties & mineral rights. Acquire the right to a share of production revenue (royalty interest) or the subsurface minerals themselves (mineral rights). Cash flow depends on volumes and realized prices; no operating control.

6) Direct participation / working interests. Take a non‑operating working interest in wells under a joint operating agreement. This can offer unique tax treatment—but adds operational and liability risk. See the tax section below.  

7) Private placements (Reg D). 506(b)/(c) offerings from operators and funds. Typically limited to accredited investors (net‑worth/income or professional‑certification thresholds).  

Types of oil & gas companies

• Upstream (E&P): Explore and produce hydrocarbons (e.g., COP, EOG).
• Midstream: Transport, store, and process (e.g., EPD, KMI).
• Downstream: Refine and market fuels (e.g., PSX, VLO).
• Integrated: Operate across the chain (e.g., XOM, CVX).
• Oilfield services: Drilling, equipment, and services (e.g., SLB, HAL).

Top stocks & ETFs (2025 snapshot)

Not investment advice; examples shown for research starting points.

Broad U.S. energy ETFs:

• XLE (large‑cap U.S. energy), VDE (broader cap spectrum), XOP (E&P‑tilted), IXC (global). Evaluate fees, concentration, and dividend policies.    
  

Representative stocks by segment:

• Integrated: Exxon Mobil (XOM), Chevron (CVX)
• E&P: ConocoPhillips (COP), EOG Resources (EOG), Occidental (OXY)
• Midstream: Enterprise Products (EPD), Williams (WMB)
• Downstream: Phillips 66 (PSX), Valero (VLO)
• Services: Schlumberger (SLB), Halliburton (HAL)
  

For commodity tracking rather than equities, USO is a futures‑based ETP with K‑1 tax reporting.  

Are oil & gas a good investment in 2025?

Macro backdrop. The IEA projects global oil demand averaging ~104.4 million b/d in 2025, with modest growth into 2026; the U.S. EIA sees U.S. crude output averaging ~13.4 million b/d in 2025, an all‑time high, even as prices are forecast to soften amid supply growth. Translation: fundamentals are balanced‑to‑loose, which favors low‑cost producers and disciplined capital allocation.  

What that means for investors. Energy can still diversify equity portfolios and deliver dividends/buybacks, but near‑to‑medium‑term returns may hinge more on company quality (costs, balance sheets, capital returns) than on a big commodity upswing.  

Key risks

• Commodity price volatility (macro, OPEC+, geopolitics).  
• Deal structure risk in private offerings (illiquidity, conflicts, fraud). Always verify registration/exemptions and sponsors.  
• Operational & environmental risk (mechanical failures, spills, regulatory changes).
• Basis & regional pricing (e.g., Gulf Coast vs. Cushing dynamics).  
• Tax complexity (K‑1s, depletion, IDC/TDC, UBTI in IRAs for MLPs).  

How much do you need to invest?

• ETFs/ETPs/stocks: Start with the price of a single share.
• Royalties/minerals: Wide range depending on basin, PDP (proved developed producing) vs. undeveloped, and tract size.
• Private placements/working interests: Issuers often set minimums (commonly five figures); verify capital calls, AFEs, and expected timelines. (Minimums vary—always review the PPM.)

How oil & gas investments are taxed (U.S.)

This is general information—always consult a qualified tax advisor.

Intangible drilling costs (IDCs):

For new drilling, a large portion of well costs (non‑salvageable items like labor, fuel, site prep) may be deducted in the year incurred, subject to rules and at‑risk limitations. Marketing materials often cite first‑year deductions of ~70–80% of the well budget depending on the project’s cost mix. See IRS guidance distinguishing IDCs and nonproductive‑well costs.  

Tangible drilling costs (TDCs):

Capitalized and typically depreciated (e.g., under MACRS schedules). (Confirm with your CPA for your specific holding structure.)

Percentage depletion:

Independent producers and certain royalty owners may claim percentage depletion (commonly 15%, subject to limits and special rules, with higher percentages possible for certain marginal properties per statute).  

Working interest special rule (passive loss limits):

Under IRC §469(c)(3), a working interest in oil or gas held directly or through a non‑limited‑liability entity isn’t treated as a passive activity—meaning losses aren’t subject to the passive loss rules. Many modern deals use LLCs/LPs (limited liability), which can change the analysis; structure matters.  

K‑1s vs. 1099s:

• Commodity pools (e.g., USO) and MLPs typically issue Schedule K‑1.  
• Most equity ETFs issue a Form 1099 instead. (Check each fund’s tax page.)  
  

MLPs in IRAs:

MLPs can generate UBTI; >$1,000 of UBTI in an IRA can trigger tax filing (Form 990‑T) by the custodian. Consider MLP‑focused ETFs/ETNs if you want 1099 reporting and to avoid K‑1s/UBTI in retirement accounts.  

State severance/conservation taxes:

Oil and gas producing states assess severance and related fees on produced volumes/value. Rates and exemptions vary—check state rules for the basin you’re exposed to.

13 expert tips before you invest

1. Match vehicle to goal. Seeking income? Consider dividend‑heavy majors/midstream or royalties. Seeking commodity beta? Futures/commodity ETPs. Seeking potential deductions? Direct working interest—but understand liability and §469 rules.  
2. Favor quality operators. Look for multi‑year drilling inventory, low breakevens, strong balance sheets, and hedging discipline.
3. Underwrite at conservative prices. Stress‑test cash flows at price decks near EIA/IEA base cases rather than bull cases.  
4. Know your basis risk. Realized prices depend on local benchmarks (e.g., WTI Houston/Midland differentials).  
5. Read the PPM (twice). Check use of proceeds, G&A, performance fees, conflicts, and exit/liquidity options in private deals.  
6. Verify accreditation & exemptions. If it’s a Reg D raise, validate your accredited‑investor status and the issuer’s exemption path.  
7. Get tax‑ready early. Ask for sample K‑1s, IDC/TDC allocations, depletion assumptions, and who prepares the partnership return.  
8. Mind entity structure. Working‑interest tax treatment hinges on whether liability is limited; entity choice can flip passive/non‑passive outcomes.  
9. Check decline curves & reserves. Request type curves, PDP/PUD mix, and third‑party engineering (e.g., Ryder Scott, NSAI).
10. Model delays. Permits, frac crews, takeaway capacity, and weather can shift timelines; build contingency into cash‑flow expectations.
11. Diversify across basins & vintages. Don’t concentrate on one operator, rock type, or vintage of wells.
12. Plan exit and liquidity. Public equities/ETFs: intraday liquidity. Royalties/minerals/working interests: secondary markets exist but are thin; price concessions are common.
13. Beware of “too good to be true.” If a private deal markets “guaranteed” returns or outsized tax write‑offs without risk, walk away and contact regulators.  

FAQs

Should I invest in oil & gas now?

Possibly—depending on your goals. 2025 demand growth is modest and supply is ample, so favor quality, cost control, and healthy dividends over speculative price spikes.  

What’s the difference between a royalty and a working interest?

Royalties receive a slice of revenue without paying operating costs but offer no control; working interests share revenue and costs (and risks) with potential tax benefits depending on structure.  

Are electric vehicles killing oil demand?

EVs are growing fast, but overall liquids demand in 2025 remains near record highs; the IEA still sees total oil demand around 104.4 mb/d this year.  

Will I get a K‑1?

Likely if you invest in an MLP or commodity pool like USO; most broad energy equity ETFs issue a 1099 instead.    

How do futures work for individuals?

WTI/Brent futures are standardized contracts; you post margin and gains/losses are marked to market daily. Consider Micro WTI for smaller sizing.  

Sources & further reading

• EIA Short‑Term Energy Outlook (Aug 2025) — U.S. 2025 crude output avg ~13.4 mb/d; softer price outlook.  
• IEA Oil Market Report (Aug 2025) — 2025 global demand ~104.4 mb/d, modest growth into 2026.  
• CME Group — WTI contract specs, Micro WTI, and options.  
• SEC & Cornell Law — Accredited investor (Rule 501), fraud alerts, and §469 working‑interest rule.    
• IRS — Publication 925 (Passive Activity & At‑Risk Rules) and Audit Technique Guide (IDC).  
• USCF/USO — K‑1 tax package information for commodity pools.  
• ETF primers — XLE/VDE overviews and comparisons.    
• MLPs & IRAs — UBTI and K‑1 considerations.  

Final word (what to do next)

• Decide whether you want commodity exposure, equity income, or project‑level participation.
• If you consider private opportunities, verify accreditation, read the PPM, and ask for third‑party engineering.  
• Map the tax angle with your CPA before you invest (IDCs, depletion, K‑1 timing, §469 structure).