Mineral Line of Credit: A New Solution for Debt Consolidation

“Never sell your mineral rights.”

You have probably heard this advice from your family time and time again. It’s often passed down from generation to generation to mineral heirs. 

But have you ever stopped to think about where the advice comes from in the first place? 

While the advice largely stems from the hope that oil and gas reserves will be worth more in the future than they are today, there’s a lot more to owning mineral rights—and leveraging them profitably—than your parents or grandparents may have ever shared. 

In this blog, we review three lesser-known considerations for mineral rights owners to inform stronger financial decisions as they pertain to your oil and gas interest. 

The Value of Your Mineral Rights Fluctuates Over Time

Your minerals are another asset on your balance sheet. Making any financial decisions pertaining to your mineral rights without thoroughly understanding their value puts you at a severe disadvantage. 

However, the value of mineral rights fluctuate due to a variety of factors: 

• Where your minerals are located
• Well productivity & the potential for future wells
• Acreage & parcel size
• Type of estate
• Lease history
• Current market conditions
• Commodity prices

This makes it difficult to determine the value of your mineral rights. 

And while the belief that minerals appreciate in value over time is founded in some truth, it’s never guaranteed that they will be worth more tomorrow than they are today. 

However, this doesn’t mean you should necessarily rush to sell your mineral rights. Being aware of the factors that influence mineral value is the first step to understanding their impact on your finances and help you make better financial decisions.  

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Your Mineral Rights Inheritance Determines How They Are Taxed 

Whether you have already inherited mineral rights or you expect to inherit mineral rights in the future, how they come into your possession will influence how they are taxed. 

For instance, if mineral rights are inherited assets as part of a will or estate plan, then they will likely be subject to taxation, depending on the state in which you live and the corresponding estate tax requirements. Mineral ownership can also be passed down to heirs through a lease. 

Because lease terms and taxation laws vary greatly across companies and states, it’s worth consulting an estate planning attorney to consult on your individual inheritance. After all, understanding key ownership details and getting clear about ownership transfer details should be an early step when evaluating how mineral ownership factors into your financial situation.

Selling Isn’t The Only Ways to Tap into Your Minerals’ Value

Once you have a clear understanding of your mineral rights and how they factor into your financial picture, you can confidently decide what to do with them. 

But, selling your mineral interests aren’t your only options.

MLOC—or Mineral Line of Credit—bridges the gap between sitting on and selling mineral rights. Inspired by Home Equity Lines of Credit (HELOC), which allow property owners to tap into home equity to borrow funds, MLOC similarly unlocks equity tied up in your mineral interest without selling your rights. 

MLOC is not a loan. Rather, MLOC is a revolving line of credit secured by real assets and accessible via a card product. Interest rates typically fall somewhere in between that of a personal loan and a credit card, depending on a few factors including the amount of the line of credit. 

Because of the potentially lower interest rate than other, comparable line of credit products, MLOC could provide a means to consolidate debt and reduce interest. It also allows you to quickly turn historically illiquid assets into cash when you need to cover emergency costs, providing peace of mind that you have a financial safety net for whatever life throws at you. 

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Apply for MLOC Today 

If you already collect monthly royalty checks for your minerals, then you could be eligible for MLOC.  There are no hidden monthly, annual, or origination fees, and no impact on your credit score when you apply. 

Learn more about MLOC and apply when you visit frontlands.com. 

If there’s one universal truth when it comes to finance, it’s this:

It’s wise to establish a liquid financial safety net.

No matter how much money you make, what line of work you are in, or how much your assets are worth, having access to cash can give you peace of mind should the unexpected occur. 

Anyone can experience medical emergencies, home repair needs, job loss, or any number of other unforeseen events that require access to funds quickly. 

While mineral owners receiving monthly royalty payments can rely on monthly lease payments, minerals have not historically been considered liquid assets. To tap into the value of mineral assets to build a meaningful financial safety net, mineral owners would traditionally need to sell their mineral interests. 

Talk about sacrificing potentially long-term rewards for short-term gains. 

Today, there’s another alternative available to royalty-receiving mineral rights owners who wish to retain ownership of the oil and gas interests: Frontlands Mineral Line of Credit™ (MLOC).

A Mineral Line of Credit is a revolving line of credit built by Frontlands that leverages mineral interest as the underlying credit, empowering mineral rights owners to access value trapped beneath their feet without sacrificing potential future value. 

The Mineral Line of Credit allows mineral rights owners like you to build a financial safety net without selling their rights by providing access to cash when you need it, for as long as you need it. 

But that’s just scratching the surface. There are several benefits of using a Mineral Line of Credit to fund your financial safety net.

Avoid Risking Your Home

Many borrowers think of a HELOC—or home equity line of credit—when they want to access cash quickly. 

HELOCs allow homeowners to borrow money against the equity in their homes. They act like credit cards that the homeowner can draw from as needed and repay over time. 

If this sounds familiar, then you're right. The concept of a HELOC inspired the creation of MLOC, so it's no wonder they may seem to be very similar financial vehicles. 

However, unlike a HELOC, which uses your home as the underlying collateral for your line of credit, MLOC leverages your mineral rights as the underlying collateral—meaning you will not lose your home if you fail to repay the loan. Funding your financial safety net with MLOC instead of a HELOC ensures you will not lose your home if you can't stay on top of payments. 

Leverage Your Royalty Payments to Pay Off a Mineral Line of Credit

Like any collateralized loan, you must stay on top of your payments and make monthly interest payments. Failure to make those minimum payments puts you at risk of losing the collateral you used to secure the line of credit —in this case, your mineral rights. 

However, to open an MLOC, you must receive monthly royalty checks from your producing wells. Because you are receiving royalty checks, you can use that royalty income to pay off your MLOC monthly.  

Discover the Mineral Line of Credit: The Smart Alternative to Selling Your Mineral Rights

With lower interest rates than most traditional credit cards, flexible payment options, and no hidden fees, MLOC is an attractive option for mineral rights owners to create a financial safety net in an emergency. 

See how much your MLOC could be worth by visiting our online calculator.

Whether you need cash fast, would like to bolster your retirement income, or you want to build a financial safety net, gaining access to funds quickly and painlessly is the first step. 

If you’re like most mineral rights owners, you’ve probably thought about ways you can leverage your mineral rights to achieve your financial goals. Traditionally, that means selling your mineral rights to access cash flow. 

However, selling your rights can turn into a lengthy process that may not solve your immediate problem. It could also mean giving up potential future value and sacrificing your family’s legacy. 

With selling your rights off the table, that leaves you with mineral right loans. 

This financing vehicle might sound like a viable option, but there are some risks that you should be aware of as you weigh whether mineral rights loans are the avenue you want to pursue.

Let’s dig in. 

First, What Are Mineral Rights Loans?

Mineral rights loans are a type of financing available to oil and gas owners who are willing to use their mineral rights as collateral. They typically provide a lump sum loan up front that the lender pays back in regular installments over time. 

Taking out a mineral rights loan allows you to retain ownership of your mineral rights while accessing liquidity from your assets. Choosing to take a loan over selling your rights may also have certain tax advantages. 

Sure, it sounds appealing. But mineral rights loans are not without risk and financial trade-offs. 

First, taking out a mineral rights loan puts your ownership at risk if you default on payment. Unfortunately, lending companies have a history of creating highly complicated contracts that can skew in their favor. Not only does this mean potentially contracting legal advice to navigate the loan terms, it means potentially locking yourself in an undesirable situation.

Additionally, leveraging your mineral rights for a loan could mean missing out on potentially larger future earnings if the minerals become more valuable over time. As mineral rights values fluctuate due to various market conditions, taking out a loan during a down market could mean that your loan is worth less than it could be in the future. 

How Do Mineral Rights Loans Differ From Royalty-Based Lending?

It’s worth noting that mineral rights lending is different from royalty-based lending, which is based on future royalty payments generated by your mineral rights. However, these loans come with their own set of risks. 

Most prominently, royalty-based lending is repaid directly from royalty cash payments. This means that a specific dollar amount is removed from your royalty payments, decreasing what you bring in from royalty income month-over-month.  

Thankfully, there are other options available to sale-resistant mineral rights owners. 

The Alternative to Mineral Rights Loans: Meet the Mineral Line of Credit 

Unlike a mineral rights loan, the Mineral Line of Credit (MLOC) unlocks equity tied up in property owners’ mineral interest to provide access to funds through a revolving line of credit. 

MLOC acts just like a Home Equity Line of Credit (HELOC), but instead of tapping into your home equity to borrow funds, MLOC uses your mineral interests as the underlying collateral.

With its competitive interest rate, MLOC offers mineral owners the opportunity to consolidate debt and reduce interest from higher-interest credit cards. As MLOC is a revolving line of credit, it provides a flexible safety net to prepare for the unexpected, and can help supplement retirement income. 

While MLOC and mineral rights loans similarly leverage an owners’ mineral interest as the underlying collateral, MLOC could be better suited to individuals who wish to access funds over a longer period of time or ensure they have access to funds for unpredictable expenses. 

Ultimately, picking which product suits your needs requires careful consideration of not just the type of financing, but also the company you’re working with. 

Learn more about our Mineral Line of Credit and get started on your online application today.