Why Sell Royalty Interest

hands-with-gas-burner

 

Things to consider for conveying your royalties:

 

Insignificant Well Production and Revenues:  All Oil and Natural Gas wells decline in productivity over time as they produce.  Fractured Barnett Shale wells decline most noticeably during the first 12 months, averaging about 70%.  After the first year, typically the rate of decline will start leveling off until about year five to seven when it reaches a decline rate of something less than 10% per year.  Essentially the first royalty check you get from a well will usually be the largest.  It often includes several months of revenues at the highest producing rates.  After that, royalty checks will decline in conjunction with this typical decline curve shown below.  For the average homeowner the monthly revenue from their royalty interest becomes insignificant.

 

6a011570a2f205970b0115715a3baf970c-800wi

 

Natural Gas Prices Have Recovered:  Natural Gas Prices, as with other commodity prices, are driven by supply and demand.  In 2008 (with low supply and high demand) we saw natural gas prices peak to the highest in our nation’s history. With the introduction of the horizontal drilling technique used in shale plays across the US, we uncovered a tremendous supply of natural gas, (now an oversupply), driving the market price of natural gas to the low experienced in 2012.  Recently, natural gas prices have recovered to a competitive price with alternative fuels.  However, the horizontal gas shale boom is expected to keep a lid on any significant price improvement for many years to come.

 

Tax Advantages:  If you are getting royalty payments now you also owe income taxes on the royalty and property taxes on your mineral value.  If you sell, you either pay capital gains on the sale at a lower tax rate or pay no taxes and reduce your basis in your property.  In either case the annual property tax goes away.

 

Need More Money Now:  Many people choose to receive a payout for the current value of their royalties for use for more significant purchases, loan payoffs or other more pressing needs.

 

10-Year-Natural-Gas-Index-Chart