Make Oil and Gas Royalty Investments Wisely
Oil and gas royalty investments are financially profitable ventures. However, one needs to understand the different types of investments and what their fine and bold print before making investments.
What is Overriding Royalty?
The operating cost of an oil or gas well can be huge in terms of exploration, mining, drilling and production activities.
The concept of overriding royalty means the net revenue that is generated for the owner or investor from the production of oil and gas well, without him having to contribute anything to the operational cost of the well.
Overriding interest is calculated through making deductions from the working interest of the lessee or operator.
An investor makes an initial investment only in this type of investment and not an ongoing one.
Since this type of investment amounts to the entitlement of only a fraction from the produce; hence, it is usually meager and towards the lower side of profit.
Unlike mineral rights, overriding interest is short termed. It expires once production ceases and the well is closed down.
What is Working Interest?
On the other hand, working interest is an investment type in the oil and gas exploration process, in which the investor has to bear a percentage of the continual operational cost associated with exploration, mining, drilling and extraction of oil and gas.
The working interest owners also become entitled to fully share the profits and revenue generated from a well’s produce; hence, a greater stake also means greater profit.
A greater profit margin makes this type of investment look really attractive, yet one needs to have ample knowledge about the oil and gas industry’s ins and outs. Otherwise, even a small downslide can wipe out small, naïve, and unsuspecting investors.
A working interest investor needs to have sound financial backing and deeper pockets in order to survive in the industry.
Here is what you should do to make an informed decision regarding making
oil and
gas royalty investments wisely:
Research Well Before Investing
Knowledge is critical for making oil and gas royalty investments and one must take into account the history of the well in order to assess its production potential.
Not all oil and gas wells produce oil and gas of marketable quality and in adequate quantity.
An oil and gas well may undergo a production slump and decline in its later life and extraction doesn’t stay economically feasible.
When the oil and gas wells lack the potential to produce oil and gas or when the extraction is no longer economically feasible, then the site has to be abandoned or capped.
Hence, hiring the services of an engineer is essential for making an assessment of an oil and gas well’s production potential.
Also, understand what kinds of taxes one needs to pay from one’s revenue and profit.
UniRoyalties can help you understand the ins and outs of oil and gas industry and help you make viable oil and gas royalty investments.
Learn more at:
http://www.uniroyalties.com/