Investing in oil and gas minerals can be extremely lucrative, but also tricky to find the right strategy for your situation. There isn’t a one-size-fits-all strategy that guarantees success since many factors can impact every investment. You have to consider things like tax advantages, historical data, future projections, expert analysis and current trends to help guide you to select the right strategy. And as fluid as the oil and gas industry can be, giving yourself some flexibility to alter your strategy is ideal as well. Here are some strategies to consider with mineral rights investing.
Working interest is defined as having ownership in the actual oil well, including bearing 100% of the production costs. With a working interest investment, investors make their profits only after the operating expenses payment has been made and after royalty owners have been paid. Working interest owners typically see higher returns, but also have a risk for experiencing greater losses.
One of the attractive aspects of being a working interest owner is you have control over production to an extent, even though you’ll still be at the mercy of the exploration and production companies. Another significant advantage for working interest owners is the tax advantages. Simply put, 100% of the investment in oil and gas working interest is deductible. A working interest investment in oil and gas minerals has always had tax advantages, but now that 100% of the investment is tax-deductible, investors are taking a closer look at this type of investment. (tax codes, rules and regulations are subject to change. Please consult with your tax advisor for your specific situation.)
Opposite of working interest investments, investors have ownership only in the production but are not responsible for the liabilities of drilling, nor the costs of production. The risk factor is much lower with a royalty interest investment. An additional benefit of a royalty owner (mineral owner) is no added cost for additional wells drilled on the property. This means, each additional well adds to the bottom line of your oil and gas investment and expedites your overall return on investment.
At Eckard Land & Acquisition and affiliates, we have worked with both investors wanting working interest and mineral interest. Ultimately, you make the decision as to what is best. We are happy to clarify any questions you may have. Those investors receive tax benefits as well as residual income from wells to maximize their oil and gas portfolio.
Research All Options Before Investing
Both royalty interests and working interests are impacted by oil and gas price fluctuations. The biggest difference is a working interest owner might lose money, whereas a royalty interest owner may just not make as much money. As with any type of investment, you need to research all of your options before settling on a mineral rights investment strategy. Many investors choose to invest in both types. This allows them to offset the income from their royalty checks with the tax deductions allowed in working interest.
Looking at historical data in combination with current trends is a good place to start. Once you’ve educated yourself on how, when and why you want to buy oil and gas minerals, speaking to an expert in the industry can help confirm your understanding and even point out potential issues you may not have considered. Oil and gas investments can set you up for your future goals, so it’s worth pursuing every angle possible.
At Eckard Land & Acquisition, we help investors in oil and gas minerals evaluate their options based on their situation. Our experience in the industry gives investors peace of mind and confidence when going through different investment options. Our goal is to provide you with all the information you need to make the best decision for your current and future needs, so contact us today to schedule a consultation and have all of your questions answered.