Oil and gas royalty interest investments lack the risks inherent with owning an oil well since you are not responsible for the expenses associated with it. It can be a good addition to your already diversified portfolio. It has some tax advantages as well.
Generally, the duration of interest paid on owning a royalty is never-ending. It is similar to a perpetuity paid in never retiring bonds. The investors are free of any liability such as Liability for costs of explorations, operation and plugging, liability for property damage and personal injury, liability for sub surface damages, or liability for failure to pay debtors or royalties due to insolvency.
Another benefit of owning oil and gas royalties is serendipity. The royalty owners receive their share of the proceeds from the sales of production if any additional wells are drilled from that point forward at no additional cost to them.
Royalty interest holder differs from working interest owner who is responsible for all costs associated with operating the asset making it expense free for royalty interest holder. The working interest holder is legally responsible for paying the royalties first, as long as the well is producing. Royalty interest holder is independent of working interest holder and is not affected if the working interest holder changes or a new one comes and enters a contract. Due to all these reasons the royalty interest holders never get any capital calls on their investment.
It is also a good addition to your diversified portfolio since these energy royalties gives these investors the opportunity to diversify into domestic energy reserve investments without the costs, risks, and liabilities often associated with drilling programs. Royalty interest owners receive direct assignment into each property and they can choose their exit strategy as well giving them greater liquidity and investment independence.