RISK #3
OPERATOR RISK
Mineral rights owners are typically passive. They rely on exploration and production (E&P) companies, that is, the operators, to drill, extract, and market hydrocarbons. There are numerous variables associated with engaging in these types of operations. For example, if the operator delays drilling, shifts focus to other acreage, or suffers financial distress, mineral rights owners have no recourse. Operators frequently declare bankruptcy during downturns, leaving mineral rights holders stranded. Without an operator drilling on your acreage of mineral rights, you will receive no distributions or cash flow. This is a 1031 exchange risk that many are unaware of.
RISK #4
GEOGRAPHIC AND GEOLOGICAL RISK
Not all acreage is created equal. A few hundred yards can separate highly productive shale formations from uneconomic rock. Investors in mineral rights often lack the technical expertise to evaluate geology and drilling potential. Worse, they may be reliant on aggressive projections from brokers or promoters who profit whether wells get drilled or not.
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