Reasons To Sell

There are various reasons why an entity or individual would consider selling. The following are some of the more common reasons:

 

 

Bigger payout now

Rather than waiting for monthly, quarterly, or yearly checks to arrive, selling would provide a lump sum cash out opportunity. This type of payout would allow for the elimination of high interest credit card bills, home or car payments, medical expenses, or any other number of liabilities.

Elimination of paperwork

Selling one's oil and gas properties can help eliminate having to calculate and file the forms associated with depletion and property tax records. the paperwork and financial record keeping associated with owning oil and gas properties can be cumbersome and tedious for anyone not dedicated to this type of asset management.

Depreciating Assets

All oil and gas properties are depleting natural resources rather than financial assets that could appreciate in value. Rather than wait for the day when the property stops producing, proceeds from a sale will provide the financial ability to invest in another form of asset that will not depreciate.

Elimination of trusts, estates and partnerships

Maintaining properties in an Estate, Trust or Partnership yields the responsibility of maintaining careful records, painful tax calculations(as previously mentioned), as well as distribution of funds and K-1's etc. Selling would allow the flexibility of the distributing one lump sum cash settlement to all heirs and/or partners.

Division of Interest

Although leaving minerals and royalties to one's heirs may sound like the best solution, many times, because the royalty is distributed to various heirs, the actual cash flow that they receive becomes trivial. Those trivial monthly, quarterly, or sometimes, yearly payments still hold all the aforementioned responsibilities that could become a headache. these interests, after having been divided several ways, have relatively little financial value to the heirs. Also many heirs know little or nothing about the paperwork associated with transferring and maintaining an oil and gas property.

Elimination of property taxes

Texas property taxes, also known as ad valorem taxes, are not assessed on the current cash flow, but rather on what the appraiser believes is the future value of the property. This method of taxation is sometimes greatly disproportioned and can be as high as 25% of yearly income.

Uncertainty

The oil and gas industry, and therefore all assets in the realm, are subject to political market, and various other uncertainties. Windfall profits taxes, competition with alternative energy, and headlines from the Middle East are just a few major contributors to the volatility of the Energy Industry. Weather variances also dictate pricing. A mild winter, for example, would drive natural gas pricing down, as the demand would be lower at that time.