Alpha provides mineral owners the opportunity to realize the monetary potential of their oil and gas assets now rather than leaving it to chance in a volatile market. Our staff understands everyone’s financial needs are different. Our hands on approach empowers the mineral owner to make well informed financial decisions.
Our services will aid in :
- Understanding the Time Value of Money
- Minimizing Risk in a Speculative Industry
- Taking Advantage of Capital Gains Tax
The idea that a dollar today is worth more than a dollar in the future is derived the Time Value of Money. Because money can earn interest through investments, it is worth more to an individual if it is available immediately. For personal finance, two equations are helpful in determining whether to sell or hold: the present value of a lump sum payment (selling your rights) and the future value of an unknown sum of money (keeping your rights). A simplistic view of this model is “a bird in the hand is worth two in the bush.”
it may seem that oil and gas owners selling their rights are taking a financial hit. Even when accounting for delays in revenue and inevitable production declines, oil and gas transactions net sellers less than what a royalty could pay out. While buyers obtain rights for a price lower than the asset’s possible long-term revenue, they also accept all of the asset’s uncertainties. The total value of an oil and gas property may never materialize. ROYALTIES ARE NOT GUARANTEED. Even if a property is in production unpredictable commodities like oil and gas are subject to variables affecting royalties, including risks associated with price, operations, taxes and even geopolitical events. By unloading their current or future production, sellers also unburden themselves of these risks
Regardless of an oil and gas owner’s decision to sell or hold their rights they will inevitably assume a tax burden. Revenues paid out in the form of lease bonuses, delay rentals and royalties are to be reported as ordinary income. Conversely, revenues realized through a sale may be treated as capital gain (IRC 1231 gain). A capital gains tax compared to ordinary income is a savings of over 50% in most scenarios. Further, exchanges of property of like kind held for investment, or for use in a trade or business, may be nontaxable.
Contact Alpha Today
Phone: 1(800) 460-5968