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Permalink Reply by tacoma7583 11 hours ago

I received a very similar offer in Columbiana county per acre to buy my rights.  the current unit is only about 70% of my property, so if they come back and drill the NE laterals ill be really happy with my decisions.   The unit im has had higher oil production than the others in the area so this helps even with lower oil prices using the forecast for 12 months production even when I pay taxes, single no real deductions.   I'll break even on what I would have earned if I would have sold the rights.  I asked three different accountants about anything to help save taxes and they didn't have any solutions that seemed legit.  One presented a plan but it felt like a good way to get audited in the future.    The only other tax situation was like a 1031 exchange on the mineral rights if sold , but I didn't want to buy a property just to buy.    

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Permalink Reply by Petroleum Agent 9202 5 hours ago

Call Appalachian Mineral Company at 724-320-9202 or oilgasmineralco.com  -  They are Petroleum Mineral Advisors who can help. I know a few others who used this company and were glad they did before selling any mineral interest.  

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Permalink Reply by David Cain 4 hours ago

Tacoma7583,

Thanks for the response.  I'm a little confused.  Did you say that in 12 months of royalties you would basically match the best offer you had to purchase your mineral rights?  Even with the dramatic drop-off in production after the first six months or so?  I do appreciate the response and I don't want to do anything that would seem dodgy.  Just want to pay the lowest legitimate taxes that I am obligated to pay.  Thanks.

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Permalink Reply by tacoma7583 3 hours ago

In my math the numbers are fairly close,  but depends on how you figure it and your tax situation.    not accounting or tax  advice but if you sell  the mineral rights it is normally considered long term capital gains, these 0%, 15%, 20% categories and how it breaks down depending on filing statues. If you keep it the IRS gives you 15% depletion on the royalties for tax purposes.  Again the unit I'm in has produced about double the oil as similar size units in my area, So that was a gambling risk too  if it would have been equal to theirs I'd probably be mad for not taking the $17,000 per acre.   I think that's why selling the mineral rights is a personal choice.  The dollar offered might provide that person to be able to pay off there home,  retire early, buy another income or retirement property.    I know most of my neighbors that kept there rights and have receive royalty's have spent the checks already, bought new truck, new SUV.   While, I'm still here eating ramen noodles trying to figure out how to make the money work for me.   

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Permalink Reply by Dwight Talbot 1 hour ago

Depending on how many net acres you have you could be better off keeping all and waiting for the production royalties.  My advice is to never sell O & G rights unless you're needing money right away. My grandfather bought a lot of oil and gas rights at tax sales, etc for $5.00-100.00 and paid taxes on them for years, and now they have produced hundreds of thousands of revenue.  17% Gross is a good %.  We have a property in Wetzel Co, WV that we were offered $10000/acre for and the 1st 2 checks from production were more than the total we were offered.  We did have substantial acreage in the unit, however.  You can look at the Declaration of Pooling filed in the county clerk's records office either in person or online possibly and find where you are listed in the unit and how many net acres you have in the unit.  You can then use the formula to figure your payment decimal:  Net acres in Unit divided by Total acres in the unit x Ownership fraction (percent) in the property parcel x 17% royalty = Payment decimal. 

For example 70 acres / 580 Unit acres x 1/2 ownership x 0.17 = 0.01025862 payment decimal

Then you can see how much you would be paid out of each 1 million of products sold out of the unit well/wells.  

$1,000,000 x 0.01025862 = $10,258.62

Most Marcellus Wells when first drilled will produce $1-3 million total per month for about the first 9 months and then begin to taper over the next several years.  

It is true that you face paying taxes, but that comes with having income.  You do have the 15% depletion deduction on your federal tax of the GROSS amount produced credited to you as well as any expenses, legal fees, accounting fees, and property taxes that you have paid in relation to the royalty income during the year.  

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