why sell?

Oil and gas plays can be unpredictable and prices fluctuate.  What seems promising today may not pan out in the future.  By capitalizing on your mineral asset now, you can hedge against any uncertainty. 

Divesting your mineral asset can help you pay down existing debt or cover costs for a home-remodel, education, or health care expense.  A lump sum payment could help you start a business or diversify into other investments with stable, more-reliable cash flows whereas monthly royalty checks deplete over time and vary unpredictably.

Distributing mineral assets from an estate can be timely and costly and the division of your mineral interest to several heirs can dilute their long-term value.  Moreover, it is often much easier to distribute cash through an estate than to divide up property. 

If you have owned your mineral assets for more than one year, the divestment of your mineral interest will be subject to a much lower long-term capital gains rate.  Royalties on production are taxed as ordinary income on both the state and federal level and can be subject to state severance taxes as high as 12.5% and state property tax or Ad Valorem can be as high as 25% of the annual income.  People often choose a large upfront payment instead of paying these taxes throughout the life of the well.  Moreover, a divestment of your mineral asset can qualify for a 1031 exchange or education tax credit to potentially offset your taxable gain. 

As a mineral owner, the timing of development for your mineral interest is out of your control.  Oil and gas companies can take years or even decades to develop your mineral asset.  Additionally, oil and gas development has been under increased scrutiny in numerous areas, which has slowed or even halted development.  Many mineral owners seek to cash out today rather than to allow their asset to be exposed to these development risks.

There is no sure thing in oil and gas development.  Even with strong well performance in an area, there can be considerable variation between them.  By selling your mineral asset now, you can hedge against the possibility of poor well performance on your asset and assure yourself a significant cash payment.