My family owns a 25% interest in the mineral rights to a 320 acre tract of land in Section 5, Block 33, H&TC Ry. Co. Survey, Ward County, TX and Section 6, Block 33, H&TC Ry Co. Survey, Ward County, TX.
Today, I got an offer for my portion of the mineral rights (a little less than 14 acres) for $240,000 from one of those entities who seems to buy and then sell to oil companies. This offer is roughly three times more than previous offers I have received in the past.
I have seen postings on this form to never sell mineral rights, but this one seem to be too good to be true on the surface of things.
It seems to me these companies are are sweetening the pot by offering more and more. And this tells me they know something I don't know about the area.
The area of this lease does not appear to be in one of those parts of Ward County that produces much oil/gas. So, why would someone offer this kind of money for mineral rights when it does not appear to be much potential? My gut tells me to hang on and not do anything and let greed get into the way of things. And besides, 38% of that money would go to Uncle Sam in the form of taxes which already discourages me.
If you have owned for more than one year, I believe the proceeds would be taxed as a long-term capital gain instead of ordinary income. 15%? Maybe sell a fraction of the minerals as a hedge [against perpetually depressed commodity prices/200 mpg fuel injector/unlimited takeoff of electric cars]?
You could do a 1031 exchange for the property. You could take all income from the property, and buy another investment property, such as other minerals, or maybe a vacation home that you can use as a rental for others as well. As long as its investment property, and your not personally living on the property full time, everything that goes towards the purchase, is not taxed. So for example, you sell for 240k and buy a investment property for 240k, you will not pay any tax. If you buy a new place for 230k, you will only pay tax on 10k, but remember, its an investment property, so that left over 10k could be used to fix up the new investment property, and then you would not pay tax on it either. You have 45 days to find a place to purchase after selling your minerals, and then 180 days to close on the new place, and do any fixing up to qualify for the 1031.
Basically, I already know about the tax situation since I have an account who handles that for me. And I am not interested in selling any part of my interest or talking to someone wanting to buy. My real question is in the last paragraph.. "'why would someone offer this kind of money for mineral rights when it does not appear to be much potential? " Or do these entities who want to buy know something that I don't about the amount of potential hydro carbons underground?
You are welcome. Assuming you do not have any particular expertise in geology/geoscience and do not have access to very expensive/proprietary data, yes, it seems like a given that the would be buyers know more about the subsurface than you do. IF your minerals produce hydrocarbons in the amounts they project, they are assuming they would get a return in the multiples of the offer, I gather. Or they might have a directive to buy for less than $20k in a particular are and sell to a ready super-buyer for $30k/acre. The risk averse or those with more challenging financial situations will likely look at an offer to sell minerals differently than debt free and higher net worth individuals. An older person might not want to hope that productive, economic wells are drilled and begin paying royalties five plus years hence. Please explain at what rate you think divested minerals owned for more than one year are taxed. I have always heard that such an event would be considered a long term capital gain. I am far from being a CPA, and would genuinely like to know how your mineral sale could be taxed at the high rate you mentioned. Speaking of federal taxes only, btw.