Pennsylvania and New York farmer landowners may be finding extra competition from Ohio Amish and Plain sect landowners who are cashing-out oil and natural gas royalty rights – tax free. Just before Christmas, the Columbus Dispatch featured an article about how some Ohio Amish landowners were "flipping" their royalty rights – selling future potential royalty payments for an up-front lump sum and rolling it into land purchased elsewhere.
Some plan to leave Ohio for greener pastures in Pennsylvania or New York – where shale gas drilling is either nonexistent or far less active than in eastern Ohio. Using Section 1031 of the U.S. Internal Revenue Tax Code, landowners – not just Plain sects – can use cash they receive for selling their oil and natural gas minerals to buy another piece of property, tax free. However, if you keep your farmland, the sale of your minerals and royalty may qualify for long-term capital gain tax rate of only 15%.
The landowners are selling decades of potential future oil and natural gas royalties for immediate cash. But that cash value is substantially discounted by investors offering the deals.
Threating the pastoral way of life
During the last year, gas/oil exploration trucks were involved in fatal collisions with Amish horse-drawn buggies on the region's narrow and winding roads. The rush to drill and frack wells, plus the truck traffic for developing them and necessary pipeline systems.
So, many Amish are cashing out to escape the noise as their bucolic landscape of lush green hills becomes dotted with oil storage tanks and rumbles with the buzz of oil rigs.
More than one Guernsey County Amishman has had enough of it. Eli Byler, for instance, recently sold
half of his future oil and natural-gas royalties to Flatiron Energy Partners, a Dallas, Tex., private equity firm specializing in mineral rights buying. Byler plans to roll the more than $220,000 in cash into a 211-acre farm in Clearfield County, Pa.
For many landowners, selling royalty rights is the best way to reduce their risk and take cash, suggests Austin Eudaly, Flatiron's vice president of acquisitions. Royalty rights-buying companies rose from two to 10 in Ohio during 2013 as speculation over the oil and gas yields from the Utica and Devonian shale formation heated up.