Frequently Asked Questions
What is the difference between mineral interest and royalty interest?
Mineral interest refers to ownership of all the mineral rights, including oil and gas, that exist beneath a property.
Ownership of mineral interest is an estate in real property, and is perpetual. A mineral owner has the right to exploit, mine, and/or produce all of the minerals lying below the surface of the property, but does not have the right to make any improvements to the surface (unless he also owns the surface rights). A mineral interest owner possesses executive rights, which allow him or her to negotiate with drillers and/or miners who seek to produce minerals from the property. The mineral interest owner also possesses the right to receive lease bonuses, shut-in payments or delay rental payments, and royalty payments for any and all minerals produced from the property. Mineral interest ownership can be, and often is, subdivided. If subdivision occurs, then all of the mineral ownership rights will be proportional, and based on the percentage of mineral interest that is owned beneath a property.
Royalty interest is the property interest created that entitles the owner to receive a proportionate share of the production revenue generated by specific minerals on a property. A mineral interest owner will usually retain the royalty interest, unless it is sold; in that case, the royalty interest may be limited to specific minerals and/or depths, and may also have a specific expiration date (although time limits are a rare occurrence). A royalty interest owner that is not a mineral interest owner doesn’t possess executive rights. Royalty interest owners are not responsible for any operational costs associated with exploration, development, or production of a property; the ownership is referred to as a non-working interest.
Why do royalty checks vary in amount?
Royalty revenue is a function of the production volume and the price paid for that production.
Prices will fluctuate from month to month, and production volumes will vary, as well.
Over time, we anticipate that additional wells will be drilled on our properties, which may lead to increased revenue streams.
What are the tax benefits of owning mineral interest?
We have years of oil and gas experience, but we are not tax experts. We are providing an overview of available benefits.
Please consult your tax professional to independently confirm the specific details.
* Percentage or cost depletion allowance is available to mineral interest owners
* Mineral interest qualifies for a Section 1031 Like-Kind Exchange
* Mineral interest is a deeded and tangible real property, not a partnership interest
There may be other benefits available to you, depending on your situation. Ask your tax professional.
Can I sell, transfer, or donate my mineral interest?
Your mineral interest is a deeded real estate interest, and as a result you retain full autonomy for as long as you choose to do so. You are in total control of both your holding period and the ultimate disposition of your property.
You may keep it for life, sell it, or transfer the ownership to a third party of your own choosing.
We can provide more details to address your specific situation.
Why is mineral interest ownership a better option than a general or limited partnership position?
We believe that direct, deeded ownership of mineral interest, as opposed to owning a fractional interest in a general partnership or limited partnership, provides its owner with considerably more flexibility and control. A mineral interest is a tangible asset in real property, with the owner in control of his holding period and the final disposition of the asset; in the case of any partnership interest, the asset is not only intangible, but subject to control by a master partner or general partner whose ultimate goal typically does not align with that of a partnership participant. A mineral interest owner is always paid directly by the operator of the property; the operator is also required to provide the mineral interest owner with ongoing production and revenue statements for the duration of every well’s productive life. When an owner participates in any partnership arrangement, he or she is placing themselves at the mercy of the partnership’s managers, and any revenue and reporting will be not only delayed, but filtered through the partnership management. Although benevolent partnership managers do exist, we learned long ago that taking the middleman out of the equation was not only prudent, but also practical. Partnership agreements can lock an owner down for considerable lengths of time, and should either your situation or your needs change, you may find it difficult, if not impossible, to get out of the partnership. On the other hand, when you directly own the asset, you retain control of your destiny. In an environment that is constantly changing, that flexibility could prove invaluable. There is another significant advantage to owning mineral interest which we believe is crucial; once you own the minerals, you will participate in any and all future development of the property, but you will never have to put any more money into the property. In the case of partnership participation, one must continually inject additional capital into the ongoing development. We prefer to enjoy the fruits of ongoing development with no additional outlays.