The Alternative to Mineral Rights Loans & Royalty Based Lending You Didn’t Know Existed

“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.

Figuring out your mineral rights' worth is one of the trickiest things to do as a mineral rights owner. 

After all, it's not a simple, cut-and-dry calculation. Figuring out your minerals' worth usually involves turning to mineral rights buyers, who consider several complex factors to provide a valuation. Plus, it's common for two different mineral buyers to give you vastly different valuations. 

That means coming to a number you're confident about involves a full run-around to several mineral buyers—who will then inevitably try to sell you on why you should sell them your mineral interest.

It's not an ideal situation. 

To help you understand the inner workings of mineral rights valuations and how mineral buyers arrive at a number, we're exploring the different factors that affect them at any given time. 

What factors go into a mineral rights value calculation?

While mineral buyers consider various complex factors, some elements weigh more heavily than others in a mineral rights value calculation. Here are four of the most important influences: 

Production History

Production is one of the most critical factors in a mineral rights valuation. 

Looking at the history of your minerals provides a holistic view of how consistently your wells will continue to produce. Trends over time can indicate whether a well is declining or remaining stable, which impacts potential future value. 

The type of well also matters as part of this conversation, as it impacts production volume. The two types of wells include:

• Vertical Wells are drilled straight into the ground to extract oil. They generally produce oil at a steady pace and require less maintenance than their horizontal counterparts, making them a more cost-effective way to drill and extract minerals.
• Horizontal Wells are a more recent innovation that involves drilling horizontally to access oil or gas in more difficult geographic areas. Horizontal wells are particularly helpful in fracking, which produces oil and gas at a high production rate for 6-9 months but tends to decline drastically afterward. 

Ultimately, the type of well matters because it impacts minerals' production levels. It influences what the well could produce over time, which trickles into your overall minerals' valuation.  

Geography & Geology

Geography and geology are critical factors that determine minerals' worth.

Geography–or where the minerals are located—goes hand-in-hand with the surrounding area’s geology. For instance, geography influences rock porosity, reservoir depth, proximity to producing basins, and other geological structure considerations. 

These geological factors determine how easy it is to access minerals, which can significantly impact operators’ costs and, therefore, minerals’ valuations.  

Surrounding Infrastructure

Geography plays an obvious role in your minerals’ valuation. 

What’s less obvious, however, is the surrounding infrastructure in any given geographical area.

In order for your wells to be serviceable, infrastructure must be in place—like roads, hotels, and restaurants—for operators to complete the work associated with maintaining wells. 

In other words, if a well isn't serviceable, it's less valuable because operational costs will skyrocket if operators must set up temporary infrastructure for themselves. On the contrary, wells located in highly trafficked areas with good surrounding infrastructure cost less to service, making it a more appealing investment.  

Commodity Prices 

Your mineral rights valuation is closely correlated with market factors, as well. 

Whether oil costs $50 or $100 per barrel will influence your minerals' valuation because as prices increase, your minerals become more valuable. 

Additionally, prices impact how oil operators service your wells. When prices are high, operators are more likely to capitalize on the opportunity to earn more from the commodity by sending more resources to service the wells. Because this increases production, high prices tend to mean higher values. 

The Simplest Way to Estimate Your Mineral Valuation 

Accurately calculating minerals' worth requires highly specialized expertise spanning several disciplines, including finance, geology, legal, engineering, managing operators, and much more. That makes it incredibly difficult to calculate your valuation without the help of a specialized team. 

However, if you're looking for a highly simplistic estimate, there is a straightforward calculation. Multiply your last month's royalty check by 30-50 to estimate a potential range you could expect to see from valuation experts. 

Keep in mind that this is a highly simplified way to estimate your minerals' worth. The best way to get a correct assessment is to contact several mineral buyers and collect estimates. You will receive a wide range of valuations, but working with several potential buyers will give you a strong understanding of what different firms value and how easy they could be to work with. 

How to Tap into Your Minerals’ Value Without Selling

Informed, educated mineral rights owners should know their minerals' worth. It's a challenging process, but it's well worth the effort, as it can help you make informed decisions about your mineral rights. 

Determining your minerals’ valuation is the first step to deciding whether to sell or hold your mineral rights. 

For example, it's common for mineral rights owners to sell their mineral interest to cover significant expenses, fund their lifestyles, or simply create a financial safety net. But you should know what your minerals are worth before making such an important financial decision.

But selling isn’t the only way to access liquidity trapped in your mineral rights. 

Frontlands’ Mineral Line of Credit—MLOC—allows mineral owners to borrow against their mineral rights. MLOC works like a credit card, letting you access cash when you need it and paying interest only on what you use. 

MLOC is the smart alternative to selling your minerals. Learn more about applying today.