‍‍“Never sell your mineral rights!”

It’s common for families that own mineral rights to pass this wisdom down from generation to generation. For those with valuable oil and gas reserves on their property, owning mineral rights can feel like protecting a precious family heirloom. 

However, this advice can become difficult to follow during periods of financial hardship. Especially as interest rates and debt climb higher in today’s challenging economic environment, selling your mineral rights may start to look like a viable solution to a growing financial problem. 

So the question remains: is heeding generational advice a good enough reason to hold onto potentially valuable resources? 

It may not be. But there are five compelling reasons you should hold onto your mineral rights.

Maintain Flexibility 

Holding onto your mineral rights now gives you the option to sell later down the road if your financial situation changes.

Especially if your unique mineral rights are well positioned to appreciate in value, holding onto potential future value could provide a reasonable safety net. Additionally, diversifying the source of your emergency funds provides further protection against market volatility and fluctuating oil and gas demand. 

Avoid Changes to Your Tax Situation

Whether you collect royalty income or sell your mineral rights, you will encounter tax implications. Selling mineral rights will require you to pay capital gains tax on the amount the value increased since your inheritance.  However, collecting royalties subjects you to income tax. 

Ultimately, if you wish to avoid changes to your taxes and the complexities that come with tax optimization, holding on to your mineral rights will ensure your tax process stays status quo year-to-year. 

Maintain Control Over Your Property 

Depending on your estate type, your mineral rights and surface rights could be tied together. 

For instance, selling a unified estate means forgoing ownership of your mineral and surface rights. Selling a severed estate means mineral and surface rights exist separately. 

Retaining control of your unified estate allows you to have more control over how the land is used and developed, while selling can often lead to activities that the surface owner may not support or find disruptive. 

Continue Collecting Royalty Payments

Retaining ownership over your mineral rights means you can continue—or explore—leasing your rights and collecting royalty payments. 

Royalties provide a steady income stream each month, based on the amount of oil and gas your land produces. In turn, you receive a portion of the income based on the terms of your lease agreement. 

If you wish to continue receiving this monthly payment, then holding onto your mineral rights and keeping your royalty payments predictable may make the most financial sense for your unique situation. 

Retain Potential Future Value

Minerals generally appreciate over time. As current market conditions cause a slowdown in production, demand for minerals is on the rise. In fact, Goldman Sachs estimates that oil demand will peak by the year 2030 and remain steady through 2035. 

But what goes up could come down—and that means your minerals may not always appreciate in value. Market conditions—and several other factors—weigh heavily on the value of your mineral rights: 

• Your property’s unique geography & location
• Well productivity & the potential for future wells
• Acreage & parcel size
• Type of estate

While retaining your mineral rights could mean holding onto potential future value, it’s difficult to time the market and maximize your returns. 

Consider Your Unique Financial Circumstances

Sometimes, it is a good idea to sell your mineral rights. Everyone’s situation is unique and there are times when selling may make the most financial sense for you and your family. 

It’s also important to consider that oil and gas are finite resources. Wells will eventually run dry. If you are leasing your mineral rights and accepting royalty payments, it’s possible the value of your mineral rights could be depreciating as your reserves are used up. 

However, there is another way to tap into the value of your minerals without selling your rights. 

Introducing The Mineral Line of Credit

The Mineral Line of Credit (MLOC) bridges the gap between sitting on and selling mineral rights. Mineral owners can now access liquidity trapped in the ground by way of a revolving line of credit. Account holders have the flexibility to use as much or as little of their line of credit as needed. 

Learn more and apply for a Mineral Line of Credit with no impact on your credit score today.