The good news, at least from motorists' perspective, is that oil prices plunged nearly 25% in one month last summer (from July 11 to Aug. 12). The bad news, however, was not hard to find. Even at that "low" level, oil traded at more than $112 a barrel and soon bounced back over $120. Gas prices remained nearly $4 a gallon.

Indeed, the bad news has far outpaced the good in recent years for energy consumers. Investors, on the other hand, have profited from all manner of energy-related vehicles. Through July, natural resources mutual funds were up 27.5% a year for the past five years, on average, while PowerShares DB Oil Fund returned nearly 75% for the last 12 months.

Whether oil moves up or down from current levels, it seems that the trading range will be much higher than it has been in the past. The same is true for natural gas, which averaged over $11 per Mcf (thousand cubic feet) in July 2008, up from $6.55 in the first half of 2007. The greatest profits may go to investors who get in on the ground. "Most of my high-net-worth clients participate regularly in oil and gas funds," says Dan Gooding, president of Greenbrier Capital in Lewisburg, W. Va. "They generally have 5% to 10% of their portfolios in these programs."

All oil and gas funds are not alike, however. Financial planners eyeing direct participation in these deals should draw some distinctions.

Public Versus Private

Publicly registered direct participation programs in oil and gas raised nearly $3 billion in 1983, according to Robert A. Stanger & Co., an investment banking firm in Shrewsbury, N.J. A quarter-century later, public fundraising has been "amazingly quiet," says Keith Allaire, a managing director at Stanger.

In the first seven months of 2008, investments in public oil and gas programs were $237 million, Allaire reports. By year-end, the total is likely to be in the $450 million to $500 million range. That's up sharply from the $71 million raised in 2000, but still a modest number compared with the money raised in public programs during the 1980s energy boom.

"We raised money in public programs through 2006," says Gary Stair, manager of investor services at Mewbourne Oil in Tyler, Texas. "However, the rules for putting out a public program make it difficult to know when it will become effective and when money from investors will be available for drilling. We like to operate continuously, so we've been using private placements, which give us a better idea of when we'll be raising capital." Other energy companies apparently have drawn similar conclusions, so most direct participation programs in oil and gas today are private placements, aimed at affluent clients who can meet certain suitability standards.

Public or private, direct-participation energy programs tend to fall into one of these categories:Income funds buy proven reserves, eliminating drilling risk. Investing in such funds now may well mean buying high. "The price of acquiring oil and gas reserves has gone up so much that it's difficult to project a good internal rate of return," says Sam Sudame, chief investment officer of Schultz Financial Group in Reno, Nev.

Some sponsors have taken note of the deteriorating economics of these funds. "For more than 20 years, we were active in creating limited partnerships to acquire interests in oil and natural gas properties," says Jim Gibbs, chairman of Five States Energy in Dallas. "But by 2006, the hedge funds, university endowments and others had so much money available to invest in producing properties that prices were bid up. Prices became so high that we could not achieve the anticipated rates of return that we thought were acceptable for our investors."

David Diesslin, a financial planner in Fort Worth, Texas, says that income funds he has seen lately are "priced to produce yields like Treasuries, plus some upside," a package unlikely to appeal to investors willing to take the risks of buying energy reserves.

• Mezzanine funds are debt-equity hybrids. "We have created an affiliated entity to provide mezzanine financing for independent operators and small companies," Gibbs says. "The money raised is used to fund developmental drilling and property enhancements and to provide financing for compression facilities, gathering lines, product treatment plants, etc."

According to Gibbs, the money raised in this program will be loaned to companies that want to do "in-fill" drilling, that is, between other wells already in production, so there's a high probability of finding oil or gas. Banks may lend 50% to 60% of estimated costs and the mezzanine financing will cover another 15% to 30% of those expenses.