3 EASY WAYS MINERAL RIGHTS CAN YIELD HIGH RETURNS
Royalties from oil and gas production
In the oil and gas industry, this refers to ownership of a portion of the resource or revenue that is produced. A company or person that owns a royalty interest does not bear any of the costs of the operations needed to produce the resource, yet the person or company still owns a portion of resource revenue produced. The more wells that can be drilled and produced on mineral rights owners acreage equates to more monthly royalty income.
Lease Bonus / Renewal Payment
When an oil and gas company is interested in drilling, they will approach the mineral rights owner to secure a lease. The lease will typically be for three years with a “upfront” payment paid to the mineral rights owner, and a negotiated royalty of all oil and gas produced from the property typically ranging from 18-25 % of gross revenue. All of Stack Royalties’ mineral rights properties are already leased, which strongly indicates an interest to drill and produce by an oil company. If the underlying lease should expire, the minerals will need to be released or the original lease be extended, both of which will equate to “upfront” income to the mineral rights owner in the form of one lump sum payment.
Mineral Rights Value Appreciation
In part, this strong ROI capability is due to the sheer concentration of oil and gas within the multi-stacked, blanketed shale zones that make up the STACK Play. When tapped, these concentrated reserves produce more oil and gas for a longer period than many other sites, all for less money than it would have taken to produce the same amount of oil elsewhere. When oil prices fall, oil companies and qualified investors are typically attracted to areas they know contain rich and obtainable reserves of oil (so as to reduce their risk and maximize their return on investment). The STACK Play has proven itself to be one of these areas. Just as in real estate development, when multi-million dollar spec homes get built in a concentrated area on beach front property, the vacant lot right next door goes up in value exponentially due to close proximity. In the oil business, we call this PUD Value (Proven Under-developed).
What are mineral rights?
When the surface property is owned by one person or group, and the rights to the minerals beneath it are owned by a different party, the mineral rights are considered to be “severed” or split from the surface property as far as ownership rights. Once this occurs the mineral rights can be transferred independently of the surface rights and vice versa. The surface and the mineral layer are treated as two separate individual pieces of property. Another point to ponder: mineral rights are dominant over surface rights in certain respects. The owner of the mineral rights has the right to reasonable use of the surface (which is owned by someone else) to explore for or produce the minerals without the permission of the surface land owner.
Mineral owners pay ZERO in property taxes
Under normal circumstances, "un-exercised" mineral rights can't be taxed. In other words, property owners don't need to pay regular property taxes on these rights. However, mineral rights have tangible value that can be realized through a sale or lease. Landowners who sell their rights outright must pay taxes on any and all proceeds. Those who lease their rights on a temporary basis must pay taxes on any signing bonus that they receive as well as on the ongoing royalty payments to which they're entitled.
As your oil is depleted from the reservoir, you have lost that resource forever. And, it applies not only to oil and gas, but it is applied to timber, gravel, quarry rock, mining materials, etc. Each are called “wasting” assets. Once removed, they are gone forever. It is no different that the depreciation that would accrue to a business machine or a farmer’s tractor. For the mineral owner, the IRS allows you to deduct 15% of the annual income for depletion without regard to the actual total volume, which is called “percentage depletion allowance.” This is the mineral owners only deduction and is a partial compensation for the loss of the reserves underground that they own.
Mineral owners receive 15% TAX allowance for depletion
BENEFITS OF STACK MINERALS:
•Perpetual Ownership and a registered mineral deed
•No drilling or completion risk
•No dry hole costs
•Pre-Leased – Drilling scheduled soon or collect lucrative future lease bonuses
•No brokerage fee
•Proven STACK minerals in over-pressured pay zones
•30+ wells per sections for increased royalty potential
•Easy to liquidate (30 days or less)
•Lowest decline rate compared to all other horizontal plays
•Drastic increase in mineral value as play gets more developed
•No well operating costs
•Direct payments from oil and gas purchasing companies
•Pipeline rich infrastructure already in place