Adam Ferrari: The Pros and Cons of Selling Your Mineral Rights
If you own land in Colorado or any state where oil and gas is commercially developed, chemical engineer Adam Ferrari says you can sell your mineral rights to energy companies in order to accelerate your profits. Whether you decide to sell or not, oil and gas operating companies can legally access your subsurface to develop the mineral estate by either securing a paid-up oil and gas lease or via force pooling. Since the concept of force pooling varies by state and can be somewhat complex, we will dive into that in another blog.
Some people will tell you that for the majority of mineral rights owners selling your mineral rights is the way to go but is that really the best advice. Here are the pros and cons of selling your mineral rights:
Pros
1. Quick and tax efficient money. When you sell, the buyer gives you a lump sum payment for your mineral rights interest. This sale is treated as capital gains and affords a substantially lower tax rate than other forms of income. This makes the option great if you need to find money on short notice or simply wish to accelerate future cash flows of your property.
2. Less paperwork. If you do not like dealing with documents and the bureaucracy of operators, then selling is the option to choose. Besides turning over the deeds of your property to the buyer, you do not have to worry about dealing with anything else related to your title or the operators that pool your lands in various drilling units.
3. Fewer risks. The sale guarantees a quick profit, whether or not the company chooses to further develop the property in the future. After the sale, your income will no longer be dependent on oil and natural gas prices which can be incredibly volatile. You are free to do what you want to do with the money you earn post sale.
Cons
1. No more ownership. After selling your land, you will no longer be the record owner of the property. You will no longer have a say over what happens to it.
2. One-time payment. If the value of the property were to increase in the future, you cannot ask for additional payments. The money you receive for the sale is final.
Adam Ferrari says selling is a great option if you have full knowledge of what you’re getting into. It is critical that the owner understands both the terms of the proposed sale agreement and the fair market value of the property. Hiring an engineer to appraise your estate will help you decide whether or not selling is the right thing to do. Should you decide to proceed with the sale, an engineering appraisal will come in handy when you negotiate for your estate’s price.
Some people will tell you that for the majority of mineral rights owners selling your mineral rights is the way to go but is that really the best advice. Here are the pros and cons of selling your mineral rights:
Pros
1. Quick and tax efficient money. When you sell, the buyer gives you a lump sum payment for your mineral rights interest. This sale is treated as capital gains and affords a substantially lower tax rate than other forms of income. This makes the option great if you need to find money on short notice or simply wish to accelerate future cash flows of your property.
2. Less paperwork. If you do not like dealing with documents and the bureaucracy of operators, then selling is the option to choose. Besides turning over the deeds of your property to the buyer, you do not have to worry about dealing with anything else related to your title or the operators that pool your lands in various drilling units.
3. Fewer risks. The sale guarantees a quick profit, whether or not the company chooses to further develop the property in the future. After the sale, your income will no longer be dependent on oil and natural gas prices which can be incredibly volatile. You are free to do what you want to do with the money you earn post sale.
Cons
1. No more ownership. After selling your land, you will no longer be the record owner of the property. You will no longer have a say over what happens to it.
2. One-time payment. If the value of the property were to increase in the future, you cannot ask for additional payments. The money you receive for the sale is final.
Adam Ferrari says selling is a great option if you have full knowledge of what you’re getting into. It is critical that the owner understands both the terms of the proposed sale agreement and the fair market value of the property. Hiring an engineer to appraise your estate will help you decide whether or not selling is the right thing to do. Should you decide to proceed with the sale, an engineering appraisal will come in handy when you negotiate for your estate’s price.
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