OZ MAGAZINE 2022 Top 25 Influencers issue 2.2 - Page 7

As evidenced by the map , most of the large rural OZs in Texas have access to negative electricity prices at night as a result of federal energy subsidies . This waste energy can be used to power AI ( artificial intelligence ) server farms at extremely low interruptible rates . When power demand is high and the access to below market electricity is curtailed , these server farms can be powered by electrical generators on site powered by natural gas sourced from directly on premises . AI servers can also be used without modification to mine cryptocurrencies or can be rented to commercial users for modeling work . Demand and profitability for both uses is extremely high . All of this can take place in a tax advantaged fashion by locating the facilities within the OZ and taking advantage of the natural strengths of these rural bypassed areas , while helping the environment by increasing the economic viability of intermittent energy sources and decreasing the use of dirty damaging fuels such as coal . achieved . The tax free benefit after a 10 year hold comes directly from the Opportunity Zone Tax Benefit afforded to operating businesses inside designated census tracts . The compounding effect of the addition of reserves and production combined with the appreciation afforded by expected overall price inflation maximizes the appreciation potential of the OZ assets which will not be subject to capital gains after the funds exit in 10 years . This combination provides the investor with the rare opportunity to protect against the possibility of future adverse tax and economic conditions while providing an extraordinary return .
While crypto mined under current rules inside an OZ using stranded energy is subject to ordinary income tax rates at the time the tokens are mined , the future scarcity and value of certain cryptos is assured by mathematics . This scarcity should result in significant capital appreciation over the 10-year hold period and would not be subject to capital gains taxes upon exit . This feature , combined with flexibility and pricing power afforded by using energy generated from several stranded sources , results in very low variable costs as well as maximum appreciation during the 10-year operating life of the project . This QOZB business can function well as a part of traditional oil and gas activities conducted in an OZ or as a standalone project depending upon the specifics of the particular site .
Operating a QOZB that specializes in traditional oil and gas activities within an opportunity zone on Qualified Opportunity Zone Business Property ( QOZBP ) allows the investor to access returns that normally would be unattainable in an economically disadvantaged area while at the same time generating tax shielded cash flow that can be reinvested into increasing production as prices continue to appreciate . An additional tax shield is afforded by the eligibility of producing minerals and royalties for a percentage depletion allowance of 15 % of the gross royalty revenue .
Christopher Cook is director of acquisitions at ELITE Opportunity Fund . He has been an oil and gas land management executive for
over 40 years . Cook practices in numerous venues and until recently supervised oil and gas regulatory activities with the Texas Railroad Commission and Texas General Land Office ( GLO ). Between 1981 and 1996 , he was the lead land negotiator for Amoco ( now BP ) covering exploration and production operations on and offshore U . S . He has also successfully fostered the creation of successful mineral and royalties ' portfolios . He earned his bachelor of business administration from the University of Texas at Austin .
https :// energypolicy . columbia . edu / sites / default / files / pictures / CGEP _ Electric % 20 Vehicles % 20and % 20Their % 20Impact % 20on % 20Oil % 20Demand-Why % 20Forecasts % 20 Differ . pdf 2 https :// www . climatechangenews . com / 2019 / 01 / 22 / electric-cars-will-not-stop-rising-oildemand-says-energy-agency-chief / 3 https :// www . bloomberg . com / news / articles / 2021-10-10 / in-a-world-fighting-climatechange-fossil-fuels-take-revenge
This is an activity that would not otherwise be generated in the rural bypassed oil and gas opportunity zones , thereby fulfilling the intention and spirit of the OZ tax incentive .
The appreciation potential of the asset occurs as the asset is drilled over its producing life as the reserves are developed and production increases as they are drilled . A hypothetical producing oil or gas unit starts out with only 1 well wellbore . As the property is developed , up to dozen or more additional laterals are drilled to capture additional oil and gas reserves . This is how the appreciation potential of the assets is