When our mother died in 2013, my 3 siblings and I inherited royalty interests in Colorado, Montana, New Mexico, and North Dakota, plus mineral rights on six properties in Oklahoma. They’re all old wells and well-drilled properties, so even back then, it all totaled to less than $2,000 per year income. But, thinking it might someday be worth more, we formed an LLC to hold the properties, with the siblings as partners. Now, the income has dwindled to much, much less, and getting to be way too much paperwork (LLC and taxes) to justify the meager income we’re splitting four ways.
Just like there are companies that buy up time share arrangements when they’re left to uninterested heirs, I imagine the same kind of businesses work in the mineral industry.
What’s the best way to approach divesting of these assets? What are the pitfalls to avoid?
Thanks,
Russell
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Holding small interests in an LLC can be more of a headache than a benefit due to the tax reporting issues. You may consider distributing the interests from the LLC directly to the heirs in their proportionate interests. Then notify the operators to pay royalties to the individuals in their individual names. Each can keep or dispose of the interests. Visit with a CPA regarding any tax implications.
This post is not legal, investment or tax advice, it is for discussion purposes only. Reading or responding to this post does not create an attorney-client relationship.
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We were in a similar position a couple of years ago. Old and retired with wells that brought in a pittance each year BUT had made income tax reporting a major project each year so I decided to sell and notified other family members of my intention. The others did not want to sell believing that the royalties might be worth more in the future which hasn’t happened for them. My opinion is that if all of your family members want to sell that might be the simplest solution BUT otherwise you should talk with a lawyer or accountant who is familiar with LLC’s and oil royalties to see what is best for you. Search on the internet for companies that buy mineral interests, contact them (the more the better) and see what kind of offers you can get. When I sold oil prices had tanked but at least I got rid of the tax headaches, now you may do better considering the current record prices for oil. There are some professionals on this forum that may see your post and give their advice.
Thanks, John. I think all will be fine with selling, but if not, they can take over the management. 
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various options-
- contact the operator of the wells involved and see if they want to buy them.
- contact the surface owner and see if he wants to buy them.
- donate to a charity and take a deduction for the value.
- There are mineral buying companies in the directories on this website and contact them.
There are companies that will definitely buy the interest, the key is finding them.
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I can’t speak to CO or NM, but I can check the ND and OK areas for possible new drilling. That is a factor to consider in wrapping up an LLC and possible fresh income.
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One big thing is shop around for offers because some buyers will give a low offer and others may give more and since you have interests in different states/areas some buyers will only be interest in certain states so you might have to deal with several buyers to sell everything. Good luck AND always read the fine print and nail down buyers about specifics IN WRITING!
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Please consider the surface owner before you go to the oil company. They would probably jump at the opportunity, especially if they have been dealing with the oil company headaches all this time!
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How would I check for new drilling?
Thanks,
Russell