Pros and cons of minerals
cash flow, value and liquidity
Cash flow from a well depends on the market and the success of production. Minerals are a good long-term investment, but cannot be easily sold for cash.
oil & gas production
Oil in the ground is hard to find, and even when you do, there’s no guarantee. Oil & gas production is an unreliable source of income, with unpredictable results, both good and bad. It can definitely be a feast. But famine can strike just as easily.
high risk high reward
Owning minerals is a gamble. The ideal candidate for mineral ownership is one who can tolerate a big loss if and when things go bust.
Con: unpredictable production
Oil & gas wells are notoriously unpredictable. Mother Nature rules below just as much as she does above. Conditions underground in any given place is as unpredictable as the weather. Wells can fail at any point, and many new wells never produce a drop after a lot of hard work. Oil and gas wells don’t replenish like water wells. Once the minerals are pulled out, the value of your mineral rights fall substantially.
Explorers go by the rule of ‘once bitten, twice shy’. A dry hole usually spells the end of any future attempts to produce from that location.
Pro: monthly royalties when producing
Owning minerals means having the opportunity to participate in oil and gas production. If your well produces, you can get a royalty check for a percentage of the production value every month. Annual bonus payments are also paid to hold the lease.
Con: supply and demand
Market forces are at work, whether it’s events around the world, or the ability to reach minerals from your well. The price of oil and gas is highly susceptible to changes in the market. Your rights are only as valuable as the quantity of oil & gas that can be extracted and sent to market. So that value will always be uncertain to a degree.
Peace of Mind Under the Right Conditions
Pro: long-term investment
Mineral interests can be a good long term investment if you know how much oil & gas is stored in your land. This must be confirmed through 3-D seismic survey and other geological and engineering study. Owning minerals can be a smart way to balance a diverse portfolio of investments.
Con: high risk and non-liquid
Minerals are considered to be a high risk asset, especially if they are your only asset besides your home. What’s more, they’re not easy to sell for quick cash. So they’re considered a non-liquid asset.
Oil is a Crop That Can Be Productive
Play it Smart
Pro: financial gains
Most mineral rights in this country will never produce oil. But when a good source is found and the price is right, a mineral owner can harvest a significant crop of revenue.