2007 – B
Oil and Gas Drilling Joint Venture

A mixed risk, multi-well drilling investment assembled to provide investors with:

• Up to 10 diversified oil and gas prospects
• Preservation of investment capital
• Significant 2007 tax benefits
• Long-term, partially sheltered cash flow
• 4+:1 returns over the projected 15 – 20 years producing life

This informational brochure contains the following:

• Investment objective
• Economics
• Tax considerations
• Prospect descriptions
• Track record

In these times of energy concerns, credit market concerns, and uncertain equity and bond markets, our non-correlated oil and gas investments have been generating excellent results.

We strongly feel that direct working interest ownership of producing energy reserves is an excellent investment strategy for today and the future, and should be a part of any sound diversified portfolio.

Prospect Descriptions

Type I - Low to Moderate Risk Wells

These wells are generally characterized as offsets to nearby producing wells, field extension wells, or wells following previously discovered oil and gas bearing sands.  We have a success rate of better than 92% for this type of developmental drilling.

1. Oklahoma:Woodford Shale and Washington Prospects
   We will be drilling six to eight gas wells (as yet unnamed) that range from a depth of 8,000' to 12,000'. These wells will be drilled in prospects where other wells have been known to be good producers from the Hunton, Skinner, Red Fork and Bromide zones. The wells reserve estimates range from 1.5 – 3.0 /BCF of gas and possible oil reserves.
2. Kansas, Stafford County
   2 – 3 developmental 4,500' oil wells (as yet unnamed) in a proven developmental area.  Existing 3D seismic data has proven useful in pinpointing desirable location, in the prolific Arbuckle oil sands.
3. Central Louisiana: Arnaudville, Wallace Lake
   These gas wells will be drilled on new acreage, adjacent to prospects that have produced excellent wells in our last few programs.  Multiple offsets from these wells are very possible. We will be exploring the Marg Idi, Fredrick, Bol Perc and  Discorbis formations, which are very successful producing gas and oil zones.

Type II - High Risk Wells

These wells are generally chosen to provide return rates of better than 8:1, with concomitant risk.  These wells tend to have offset potentials to capitalize on the original discovery.

1. At this time, we are evaluating timely choices for the high-risk prospect for this Joint Venture.  Typically, no more than 20% of the fund will be invested in a project deemed to be higher risk than Type I wells, which uses 3D seismic, geological analysis, data interpretation, and includes up to 3 wells, sufficient to test a prospect with a higher projected risk/reward expectation.

The above prospects and schedules are subject to change.

We will keep you updated on the progress of the program monthly.

ECONOMIC PROJECTION

This Joint Venture will drill and complete multiple oil and gas wells, using geological diversification, to enhance economic returns.  The prospects to be drilled are either Type I or II as described below.

The 2007 – B Joint Venture will become active prior to year-end ensuring 2007 tax benefits for initial capital invested and all 2007 completions.  The wells will be drilled, logged and completed over a 10 – 20 month period.  Completion costs, for successfully logged wells, will be billed to investors separately as each well is confirmed suitable for completion.  Completion costs (if all wells are completed) are estimated to amount to 50 – 65% of initial equity. All of the completion costs will qualify for tax benefits in the year incurred.

Distributions under normal circumstances will begin 60 – 90 days after first production for each well, and shall be paid monthly.

INVESTMENT TAX BENFITS

--The following general discussions are provided for background information only. This information is not intended to be individual advice. Participants should consult with their personal tax advisor concerning the applicability and their effect on the personal tax situation. Tax laws change from time to time and there can be no guarantee of the interpretation of the tax law--

Tax Advantages of Oil and Gas Drilling

Congressional Incentives – Natural gas and oil development from domestic reserves helps make our country more energy self-sufficient by reducing our dependence on foreign imports. In light of this, Congress has provided tax incentives to stimulate domestic natural gas and oil production financed by private sources. Natural gas and oil drilling projects offer many tax advantages. These tax benefits enhance the economics.

Intangible Drilling Costs Tax Deduction – Oil and gas projects are labor intensive, so a significant portion of the expenditure is considered Intangible Drilling Costs (IDC), which is 100% deductible during the first year. For example, a participation of $100,000 could result in approximately $65,000 in tax deductions for IDC even if the well does not start drilling until March 31st of the year following the contribution of capital. The remaining $35,000 of tangible costs 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 business. The new Tax Code specifically states that a Working Interest in an oil and gas well is not a “Passive” activity; therefore, deductions can be offset against income from active stock trades, business income, salaries, etc.  (See Section 469(c)(3) of the Tax Code).

Alternative Minimum Tax – Prior to the 1992 Tax Act, working interest participants in oil and gas joint ventures were subject to the Alternative Minimum Tax to the extent that this tax exceeded their regular tax. The recent Tax Act exempted Intangible Drilling Cost as a tax Preference Item. “Alternative Minimum Taxable Income” generally consists of adjusted gross income, minus allowable Alternative Minimum Tax itemized deduction, plus the sum of tax preference items and adjustments. “Tax preferences items” are preferences existing in the Code to greatly reduce or eliminate regular income taxation. Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage ad the well thereon. 

TAX EXAMPLE

A Joint Venture participant’s potential tax benefits:

Each Joint Venture participant’s tax liabilities are different; consult with your personal tax advisor regarding the potential benefits of oil and gas joint venture investments. The below example assumes an individual in a 49% tax bracket.  (NYC Taxpayer)

Oil and gas revenue qualifies for a depletion allowance, which effectively reduces taxes on distributions by 15% for the life of the program (15-20 years).

Anticipated distributable income projections of $10,000 in the first year, provides return of after tax capital in 3.8 years, and a total program return of better than 4+:1 for the life of the program.