Determining the exact benefit of selling mineral rights can be complex due to the wide variety of factors involved, including the type of mineral, location, size of the property, current market conditions, and the stage of development (whether the minerals are already being extracted or not).
Here at Retama, we always try to remember first and foremost that each person’s situation is unique and will depend on the value of their mineral rights, their financial circumstances, and their personal objectives. We always tell our partners that it is a good idea to consult with a financial advisor or a lawyer before making a final decision about their mineral rights.
However, in many cases, selling mineral rights can be beneficial for a number of reasons. Here are some of the key advantages:
Direct Finacial Gain
Receiving Payment
Mineral rights are the legal interest in the subsurface of a property. Your mineral rights give you the right to explore, develop, and produce any oil, gas, and/or other minerals that lie below the surface of your property. In some cases, the mineral rights are separated from the surface rights, meaning that one person may own the surface of real property while another owns the minerals beneath the surface.
Royalties are payment to the owner of mineral rights for the privilege of extracting the mineral (oil and/or gas) from the ground based on a mineral lease agreement. The royalty payment is typically based on a portion of earnings from the production of the minerals, and varies depending on the type of mineral and the market conditions.
Peace of Mind
Avoid Risks
The commodities market can be highly volatile, and the value of minerals can fluctuate dramatically. For example, the price of oil dropped from over $100 per barrel in mid-2014 to under $30 per barrel in early 2016. Selling mineral rights allows owners to avoid this volatility and secure a guaranteed payment.
By selling your rights, you can eliminate the risk of prices falling in the future. This also removes the risk of operational issues like drilling delays or equipment failures, which can impact revenue.
Reducing Administrative Burden
Ownership of mineral rights can require significant management, particularly if the rights are being actively developed. This can involve contracts, royalties, taxes, and potential legal issues.
The actual development can also require a high cost. These ongoing costs can include maintenance, equipment, and personnel, all of which will eat into profits. Selling mineral rights allows owners to avoid these burdens.
Tax Planning
In some cases, selling mineral rights can have tax advantages. Depending on the specific circumstances and local tax laws, the income from selling mineral rights may be taxed at capital gains rates, which can be significantly lower than the income tax rates. For instance, as of 2021, the long-term capital gains tax rate for most individuals in the U.S. ranged from 0% to 20%, depending on income level, whereas the top marginal income tax rate was 37%.
Removing Uncertainty
The process of extracting and selling minerals can be lengthy and uncertain, involving geological surveys, regulatory approval, and finding a company willing to do the work. In some cases, it can take years before any income is generated. Selling the rights provides a certain amount of income immediately.
Estate Planning
Managing mineral rights can be difficult to understand and manage. Leaving them as part of an estate can create complications for your heirs. Selling can simplify your estate, making it easier for your heirs to manage and benefit from.
Portfolio Diversification
If a substantial portion of your wealth is tied up in mineral rights, selling them allows you to diversify your portfolio. This can help spread risk and create a more balanced financial situation.
The cash influx could be used to invest in stocks, bonds, real estate, or other ventures, possibly creating additional income streams for you and your family.
Personal Benefits
Funding Education
Planning for your child’s college education can be daunting. Selling mineral rights could provide the necessary funds to cover tuition and other related expenses. This could ensure a debt-free education for your child, removing the burden of student loans.
Buying a New Home
The lump sum received from selling mineral rights could be used as a down payment for a house or even to buy one outright, providing security for you and your family.
Funding Education
Planning for your child’s college education can be daunting. Selling mineral rights could provide the necessary funds to cover tuition and other related expenses. This could ensure a debt-free education for your child, removing the burden of student loans.
Retirement Planning
If you’re nearing retirement, the sale could supplement your retirement fund. This could help ensure a more comfortable lifestyle, afford medical expenses, or fund travel plans during your retirement years.
Paying Off Debts
If you have significant debts such as a mortgage or credit card bills, selling mineral rights could help pay these off, easing financial stress and potentially improving your credit score.
Philanthropy
If you’re passionate about a particular cause, selling mineral rights could give you the opportunity to make a significant donation or even start a charitable foundation.
Get Creative!
Want to take that honeymoon to Italy you and your better half were never able to afford? What about a new car? Or front-row seats to see the Cowboys play? Mineral rights could be your ticket to fulfilling a dream.
Whatever is on your bucket list, beginning your journey of selling mineral rights starts with a phone call. Retama is ready and excited to speak to everyone that has an interest in exploring the financial and personal benefits of selling their mineral rights. While every person’s situation is unique, we’re here to help and guide our partners.
