FINRA Series 7Investment Information and Suitable RecommendationsHard
A registered representative is recommending a direct participation program to a client seeking current income with relatively lower risk compared to other oil and gas programs. Which type of oil and gas program would be MOST suitable?
- ADevelopmental program
- BIncome program
- CCombination program
- DExploratory (wildcatting) program
Show answer & explanationAnswer & explanation
Correct answer: B. Income program
Income programs invest in existing, already-producing wells with proven reserves, offering more predictable cash flow and lower risk than exploratory or developmental programs, which drill new wells with uncertain outcomes.
Why the other options are wrong
- A. Incorrect — developmental programs drill near proven reserves but still carry drilling risk.
- C. Incorrect — combination programs blend exploratory and income components, adding risk versus a pure income program.
- D. Incorrect — exploratory programs drill in unproven areas and carry the highest risk.
Oil and Gas Income Program
A direct participation program that acquires interests in existing, producing wells to generate current income with lower risk than drilling programs.
- Income programs = existing producing wells, lowest risk
- Exploratory/wildcatting = highest risk, unproven land
- Developmental = drilling near proven reserves, moderate risk
Memory trick: Income = 'already flowing,' Exploratory = 'wildcat gamble.'