Long considered a mailbox investment, royalties are paid first from a well’s pre-expensed production revenue. Royalty owners typically receive 12-25% of cash flow after production taxes have been paid.
Royalty payments are made for as long as an asset produces, which can be upwards of forty years or more in some fields.
Royalty owners are not subject to capital calls or operator assessments; they are not responsible for any costs associated with the drilling of wells nor costs related to production, transportation, marketing, and/or ongoing maintenance of oil and gas properties. In addition, Royalty owners bear no drilling or operating liabilities.
Royalty owners enjoy a depletion allowance which waives income taxes on the first 15% of royalty income on an annual basis.
As like-kind property, oil and gas royalties are eligible for IRC-1031 Exchanges, which provides capital gains tax relief for real estate and energy investors. Click here to learn more.
The oil and gas industry is currently in an extended pricing downturn, making the entry costs of asset acquisition lower than what has beenseen in years. For investors, this equals the potential to enjoy greater upside as pricing stabilizes and/or returns to the higher numbers seen in the recent past. While pricing will continue to fluctuate, many experts agree that today’s lower commodities pricing represents an attractive opportunity to enter or expand one’s position in the energy industry.
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API Royalties specializes in the acquisition and divestiture of mineral and royalty interests, helping our exclusive group of clients diversify and strengthen their asset portfolios through smarter energy investing.
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