Investing in an Oil Well vs Investing in Mineral Rights

One thing about investing in oil and gas investments all experts can agree on is there are plenty of options available. While this is a luxury in some respects, it’s also challenging for investors to know which options to pursue. One of the most common investment strategies is investing in mineral rights. Investing in oil and gas minerals requires strategic planning and patience to maximize your return on investment. Here are some of the differences between mineral rights investing and direct oil well investing.

Investing in Oil Wells Directly

When you invest directly in an oil well, you are making what is known as a working interest investment. With this type of investment, you participate in the exploration and production of oil and gas minerals, including being responsible for the costs of every phase of production. The amount you are liable for is equal to the amount of the well you own. 

One of the benefits of being a working interest owner is you own the majority of the well. You can also deduct 100% of the oil well in the first year under new tax laws. Although it may seem like you have total control of a well as a working interest owner, you’ll still be at the mercy of exploration and production companies. This is, of course, unless you as the investor wish to drill the well yourself and become the sole operator. With no prior experience, we do not consider this an option.

Investing in Mineral Rights

When you invest in mineral rights, you own the subsurface minerals. You have a significant amount of power as an oil and gas mineral interest owner, since you have the rights that multi-million and billion-dollar companies want. You don’t control any aspect of when these companies explore your minerals, but you can receive a lucrative royalty of anywhere from 10% to 25% of every barrel of oil and gas extracted. And arguably the best part about it is you aren’t on the hook for any of the exploration or production costs.

Discuss Your Options With Experts

Every investor has their own specific reasons for choosing a working interest investment over owning oil and gas minerals or vice versa. In most situations, investors who want to make a long-term investment and constantly seek out various income streams choose mineral rights investing. On the other hand, investors with a substantial income already may choose working interest ownership due to the tax advantages primarily.

If you’re looking to buy oil and gas minerals, it’s well worth your time to speak to an expert about all of your options. Investing directly in oil wells may be the obvious choice for some investors, but others may benefit more by investing in mineral rights. Understanding the ins-and-outs of each type of investment can help you gain a big-picture view of how the investments can move you forward to reaching your goals.

At Eckard Land & Acquisition, we handpick mineral rights and working interest opportunities to help high net worth investors get in on the ground floor. No matter how experienced you are in mineral rights investing, we are happy to discuss different options with you and address any concerns you may have. The world of mineral rights investing is highly complex, so never hesitate to reach out to us to gain a better understanding to benefit your situation.