In a recent blog post, we discussed what mineral rights are. To recap, mineral rights, also known as mineral interests, are a form of real property rights. Owning mineral rights gives an individual the right to exploit, mine or produce any or all of the minerals lying below the surface of the property -- in this instance, oil and gas. Once you own mineral rights, they never expire.

Now that we’ve established what constitutes ownership of mineral rights, let’s explore how to make money from them.

Owning oil and gas minerals is different than participating in a drilling and development program. Owning mineral rights tends to have a lower risk profile and can have higher rewards than investing in a drilling program for several reasons, such as not having to contribute to operating expenses, completion or dry-hole costs. The mineral rights owner receives an up-front lump sum lease signing bonus from the drilling company paid on a per-acre basis for the right to drill. In addition to the lease bonus paid to the mineral rights owner, there’s also the off-the-top monthly percentage (12.5 percent to 25 percent) of gross production check that is owed to the mineral rights owner, often referred to as “Green Mail.” At Redhawk, we typically produce cash flow for investors within six to 12 months of beginning mineral purchases. Based on fairly conservative assumptions, estimated return targets in one of our mineral programs could create a mid-range internal rate of return (IRR) of almost 26 percent and a very handsome ROI.

To further demonstrate how the process of investing in mineral rights works and to showcase the potential for profit, let’s look at an example using the STACK play (Sooner Trend Anadarko Basin, Canadian and Kingfisher counties) in Oklahoma. Some of the biggest independents are already drilling the area successfully, and many have committed to expansive drilling programs. For example, large operators with considerable activity are Devon with 430,000 acres and 5,300 locations, Newfield Exploration with 210,000 acres and 3,850 locations and Continental Resources with 146,000 acres, to name just a few.

Source: ShaleExperts.com

In the example below, with oil shown at $45.00 per barrel (bbl), the gross profit per barrel would be about $31.50 per boe (barrel of oil equivalent). For this example, let’s assume a production mix of 50 percent oil and 50 percent gas.  After having paid a lump sum, upfront cash bonus, to the mineral rights owner, plus a promise to pay them the top 20 percent of revenue from production, the oil company would get 80 percent of the revenue, or $25.20 per bbl. From their gross profit, the oil company would then deduct $.75 per bbl for taxes and $11.20 per bbl for operating expenses, leaving a profit of $13.25 per bbl.

The mineral owner, on the other hand, after “banking” the up-front lease bonus in advance, receives his 20 percent of the gross revenue or $6.30 per bbl. From that amount, the mineral owner deducts only the $0.19 per bbl tax (ad valorem tax only) for a per bbl profit of $6.11. The mineral owner has borne zero drilling risks, zero completion risks and has paid no operating expenses.​

The oil company has to invest very large sums of money to accomplish their return on investment goals which -- when compared to the mineral owner’s goals -- seem way out of proportion. The following chart will show what we mean. We have estimated there will be 12 wells per square mile (640 acres, or “section”) drilled by the large operators already drilling in the STACK. In some cases, with improving efficiencies, there may be as many as 17 wells per section drilled.
​

​It’s clear from the example given that investing in mineral rights is a smart decision that involves a low-risk investment with a potential for high-yield, in comparison to investing in a drilling operation.

We pride ourselves on being transparent and on thoroughly educating our qualified and accredited investors. At Redhawk Investment Group, we have decades of experience developing and managing oil and gas investments. This fall, we’re offering accredited investors the opportunity to invest in our Redhawk Minerals Fund II, LP. This fund, with mineral rights strategically located in Oklahoma’s high-producing STACK play, is projected to be a 30 million dollar fund with an average annual yield target of 20+ percent.

Are you curious to learn more about mineral rights and how you can make money from ownership? Get in touch with us today.​

The material herein does not constitute an offer to see nor is it a solicitation of an offer to purchase any security. Offers will only be made through a private placement memorandum to accredited investors and where permitted by law. Investments in security are not suitable for all investors who can withstand the loss of their investment. Investors should perform their own investigations before considering any investments and consult with their own legal and tax advisors. Past performance does not guarantee future results. This presentation is copyrighted material and only for the use by Redhawk Investment Group and its affiliates.

Investing in oil and gas in the U.S. has, at times, intimidated investors, thanks to its relatively high costs and potential risks. For those who want to create wealth within low or moderate risk environments, and who wish to generate cash for future reinvestment, however, investing in oil and gas in the U.S. can be a good fit that yields profitable results.
 
Investors who want to learn more about how U.S. oil and gas investments can help them create the kind of wealth they desire should first consider the three biggest reasons for making such investments. Then, they should consider how they wish to step into direct investment in mineral rights or oil and gas drilling and development investments or both, a decision that Redhawk and its low to moderate risk projects, can help them to make.

Investing in oil and gas in the U.S. comes with generous tax benefits.   

The U.S. government is motivated to encourage U.S. oil and gas investments because they contribute to greater domestic production of these natural resources and, subsequently, less dependence on foreign oil. As a result, investing in oil and gas in the U.S. comes with generous tax benefits that can offset many of the expenses of these investments.
 
For example, deductions can typically be taken from intangible drilling costs, which generally include everything but the drilling equipment itself. These costs, which can constitute 65 to 80 percent of the total cost of drilling a well, may be deducted. And, this deduction is allowed regardless of how the well performs, and regardless of whether or not it ever strikes oil.
 
Other tax benefits that may apply to U.S. oil and gas investments include deductions based on the tangible drilling costs (which can be deducted on a seven-year depreciation schedule), passive vs. active income deductions, and a 15 percent oil depletion allowance for oil revenues.
 
Investors should always look into how these tax benefits will apply to the specific investments and projects they are considering. However, when applied correctly, they can make investing in oil and gas in the U.S. less of an expensive burden and more of a profitable and desirable way to create wealth.
 
Investing in oil and gas in the U.S. provides protection against the effects of economic downturns on investors’ portfolios.

Diversification is the bedrock of many successful investors’ strategies. Investing in multiple industries and projects in different forms of ownership can lessen the negative impacts of a downturn in one area by increasing the chances that at least some parts of the portfolio will continue to perform well in other areas.
 
When it comes to protecting one’s portfolio (and one’s wealth) against broad-based economic downturns, U.S. oil and gas investments provide a useful form of diversification. In particular, oil and gas investments within the U.S. tend to perform well when oil and gas prices rise, and the rest of the economy stumbles.
 
Thanks to this trend, the negative effects of an economic downturn can be mitigated at least in part by an improvement in oil and gas stocks performance. As a result, oil and gas investors, enjoy a portfolio that is stronger and more likely to withstand the ebbs and flows of the market, making these types of investments an appealing way to solidify and diversify a portfolio.
 
In addition, oil and gas investments in the U.S. can take a variety of forms. For example, investors may choose oil futures investments, oil drilling investments, mineral investments, and more, depending upon the type of investment and risk they find most desirable. As a result, there are ways to diversify one’s oil and gas assets as well, a fact that many investors find appealing as they seek to build and protect their wealth through diversification.
 
Investing in oil and gas in the U.S. can lead to significant wealth creation.

One of the goals of most investments is to build wealth, and U.S. oil and gas investments have the potential for great profitability within a short amount of time. For example, investing in oil stocks during a downturn in the price of oil can yield large profits when prices rebound, one reason that oil was touted in many areas as a strong investment option in 2016.
 
In addition, investing in oil drilling, oil futures, and mineral rights can provide a strong return, sometimes within a short amount of time. This return on investment is often even more appealing because of the tax advantages that apply to many oil and gas investments: The deductions and advantages available reduce overall expenses related to the investment, thereby increasing the amount of profit an investor can make from the project.
 
Wealth creation in oil and gas investments can occur at a variety of risk levels. For example, relatively risky oil futures can be particularly profitable. On the other hand, sometimes, profit can be realized without the high-risk endeavors that investors often associate with oil and gas investments. For example, owning mineral rights can be a way to build wealth without the risk of dry holes or high operating expenses. And of course, there are investment options that carry moderate risk that is neither as high as oil futures nor as low as owning mineral rights.
 
Finding the right investment partner is essential and can help you to improve your success in U.S. oil and gas investments and help you to find the right investments to make. At Redhawk, we are aware of our investors’ desire to enjoy near-term cash returns and to have cash available to reinvest.
 
That is why we provide accredited investors with access to diverse direct oil and gas investment offerings that are designed to provide a strong return on investment. Currently, one opportunity is targeted for a 20-plus percent yield annually, while another will provide significant tax benefits. There are a number of good reasons to invest in U.S. oil and gas; let us help you discover all of those reasons and find the right investment project for your needs.
 
Always make sure you consult a financial professional for questions and appropriate advice regarding the financial impacts of the oil and gas investments in the U.S. that you wish to make. 

Curious to learn more about the benefits of investing in oil & gas? 
Get in touch with us.

The material herein does not constitute an offer to see nor is it a solicitation of an offer to purchase any security. Offers will only be made through a private placement memorandum to accredited investors and where permitted by law. Investments in security are not suitable for all investors who can withstand the loss of their investment. Investors should perform their own investigations before considering any investments and consult with their own legal and tax advisors. Past performance does not guarantee future results. This presentation is copyrighted material and only for the use by Redhawk Investment Group and its affiliates.