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Selling Mineral Rights In Texas And How It Works

oil rig

Mineral rights award the authority to harvest resources from a certain land. However, the word “mineral” may include petroleum, natural gas, metal, and coal. Texas is famous for producing oil and gas. In fact, with many areas rich with resources such as the Eagle Ford Shale and Permian Basin,

Texas has gained a reputation of its own as the country’s largest producer of oil and gas. Living in Texas could mean that you might just be sitting on mineral deposits. Maybe now is the time to find out. 🙂

In this blog post, some of the advantages of selling mineral rights in Texas are mentioned for your perusal.

Advantages of Selling Mineral Rights in Texas

Taxes

Mineral divestiture allows you to reap the benefits of relatively low taxes on capital gains and strategic 1031 property exchange.

The interest in minerals and royalty are real property interests and are classified as capital assets for federal income tax considerations. When it’s maintained for more than a year, the capital asset will be counted as long-term capital gains, leading to substantial federal tax cuts once the property is transferred.

Production Decline

The RRC estimates that from June 2018 to May 2019, the total output recorded by Texas was around 1.4 billion crude oil barrels and 9.2 trillion cubic feet in gas. However, your interest in oil and gas is a scarce and depleting asset. The production of oil wells is steadily declining, and royalties become lower and lower. Horizontally drilled wells undergo a drastic decline in output from the first 30 days.

Minimizing the Timing Threat

Keeping your mineral rights is a gamble if you think somebody will ultimately develop your land area, but further progress can take several years or may not occur at all, based on economic demands. Divesting your mining interests means that you will be paid with no possibility of uncertainty.

Lowering Oil Price Uncertainty

Market fluctuations in the competitive crude oil industry indicate that the volume of your potential monthly royalties is highly volatile. West Texas Intermediate is a reasonably light crude oil, and because of that, it’s used as a standard for fuel pricing. It’s included in commodity price reports, among other major oil brands, such as the UK Brent or the OPEC basket. Once you sell your mineral rights in Texas, you remove the possibility that your prospective royalty payments will be decreased when oil price lowers.

Versatility and Convenience

Not having the responsibility to monitor and validate the monthly performance reports, division directives, and other documentation from various distributors, you can be free to allocate your money and time somewhere more profitable for you.

Diversification of Assets

Diversification is an investing strategy that permits you to boost your visibility to all other markets via equities, bonds, property development, etc.

What’s the Mineral Rights Selling Process in Texas?

Selling mineral rights is considered as a real property trade and the process usually follows this path.

  • The buyer and the seller must negotiate and agree on a price.
  • Legal documentation is signed for both sides during agreements, typically as a Purchase Sale Agreement (PSA) or a Letter of Intent (LOI).
  • The property title is subject to an inspection procedure, where the company sends a landman to the location, and the title is verified.
  • Last is the closure in which the deed or conveyance will be traded for the decided price.

The entire mineral sale process typically takes about 30 days to finish.

Summary

Whether you’re planning to sell your mineral rights in Texas or merely would like to explore the advantages you can gain in doing so, start first by locating a seasoned royalty company to work with. A trustworthy royalty firm has significant exposure to a network of eligible buyers who could pay you the highest price for your rights and will ensure dishonest buyers do not exploit you. If you sell mineral rights in The Lone Star State to the correct purchasers, you can make a huge profit!

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