Author: Valor

The oil and gas industry offers various types of investment opportunities, but two of the most common forms of interest in mineral ownership are Operating Working Interest and Non-Operating Working Interest (Non-Op). Both involve a share in oil and gas production and revenue, yet they differ significantly in the roles, responsibilities, and financial implications for investors. This blog post will explore these two types of working interests, highlighting their differences, advantages, disadvantages, and tax implications.

Defining Operating Working Interest and Non-Operating Working Interest

Operating Working Interest is a form of ownership that gives the interest holder direct responsibility for managing operations. An operating working interest owner is involved in decision-making processes and oversees the exploration, drilling, and production activities associated with an oil or gas well. They take on a hands-on role in the day-to-day operations and bear the associated risks and expenses.

Non-Operating Working Interest (Non-Op) is an investment in the production of oil and gas assets without direct operational responsibilities. Non-Op owners contribute capital to the exploration and production process but do not control operational decisions. Instead, they rely on the operator to manage well activities, giving them a passive yet potentially lucrative ownership share.

Key Differences Between Operating and Non-Operating Working Interests

1. Operational Control
   • Operating Working Interest: Owners have full control over operations, including hiring contractors, making budget decisions, and ensuring compliance with environmental and regulatory standards.
   • Non-Operating Working Interest: Owners have no control over operations and instead rely on the operator to handle all logistics and decisions related to the well.
2. Risk and Responsibility
   • Operating Working Interest: Comes with higher risk, as owners are responsible for operating costs, liabilities, and any environmental or regulatory compliance issues. They are also responsible for covering cost overruns and managing accidents or issues arising from operations.
   • Non-Operating Working Interest: Bears fewer responsibilities in operations but still shares in production costs and risks tied to the success or failure of the well. Non-op owners typically have limited liability in operational mishaps.
3. Revenue and Expense Structure
   • Operating Working Interest: Owners receive a larger share of production revenue but also assume a larger share of the associated costs.
   • Non-Operating Working Interest: Although they receive a smaller percentage of production revenue, non-op investors do not bear full operational expenses, making it a lower-risk, lower-involvement investment.

Advantages and Disadvantages of Each Type

Tax Implications of Working Interest Income

Both operating and non-operating working interests generate taxable income. However, the tax structure for each type of interest can vary:

1. Tax Treatment of Expenses
   • Operating Working Interest: Operational costs, including drilling, completion, and operational expenses, are generally deductible, providing tax savings for the owner.
   • Non-Operating Working Interest: Investors can deduct their share of expenses without the burden of ongoing operational costs, making it advantageous for tax efficiency.
2. Depletion Allowance
   Both types of interests are eligible for a depletion allowance, a tax deduction on income from oil and gas production that offsets the diminishing value of the resource. The depletion allowance is typically 15% of gross income for oil and gas production, helping to reduce taxable income significantly for both non-op and op owners.
3. Passive vs. Active Income
   • Operating Working Interest: Income earned through an operating working interest is usually classified as active income, which requires paying self-employment taxes and adhering to different IRS guidelines.
   • Non-Operating Working Interest: Income is often classified as passive income, meaning non-op owners may be able to offset losses against other passive income sources, subject to specific tax regulations.
4. Tax-Advantaged Status
   Both types of working interests allow investors to benefit from tax advantages in the form of intangible drilling costs (IDCs) and tangible drilling costs (TDCs). IDCs are generally fully deductible in the year incurred, while TDCs are capitalized and depreciated over time, providing a tax-shielding effect for both non-op and op investors.

Why Understanding the Differences is Important

Choosing between an operating and non-operating working interest is a crucial decision for mineral owners/investors, as it directly impacts control, risk exposure, tax treatment, and potential returns.

• For Active Involvement: An operating working interest offers higher control and potential revenue but demands a thorough understanding of the industry and the capacity to manage significant financial and operational risks.
• For Passive Investment: Non-op interests offer a path to participate in the oil and gas industry without the demands of direct management. It’s a good fit for investors looking to diversify their portfolio while taking on less operational risk.

How Valor’s Mineral Management Services Benefit Non-Op Working Interests

For non-operating working interest (non-op) owners, maximizing income from their investment while minimizing the complexities of managing it can be challenging. Valor’s mineral management services are designed to support non-op owners by offering a comprehensive solution that includes everything from portfolio management to income tracking and regulatory compliance. With Valor’s proprietary mineral management software, mineral.tech®, and team expertise, non-op owners can enjoy full transparency into their assets, receive accurate and timely revenue disbursements, and benefit from detailed expense tracking without the hassle of overseeing daily operations. Valor’s services also cover essential areas like ownership verification, tax overview, and document management, which ensure that non-op owners maximize the value of their investment while staying compliant with industry and tax regulations. This hands-off, expertly managed approach allows non-op owners to enjoy the benefits of oil and gas investments with confidence and peace of mind.

Both non-operating and operating working interests provide unique advantages for investors in the oil and gas sector, from active control over projects to passive income streams. The choice between these options often depends on an investor’s risk tolerance, experience in the industry, and desire for control over operations. With the potential for tax advantages, understanding these structures can help investors optimize their financial strategies while capitalizing on opportunities in the energy market.

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Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

By Liz Johnston, Director of Growth Strategy at Valor

Mineral management serves as the cornerstone of sustainable resource extraction and equitable resource distribution within the oil and gas sector. Ownership of mineral assets offers a pathway to long-term income, but it’s an intricate, multifaceted industry.

Mineral management encompasses a wide array of responsibilities, from the analysis of lease agreements and geographical information system (GIS) mapping to regulatory compliance, lease negotiations, payment reconciliation, and estate administration. Managing these tasks effectively is essential to maximize the value of these valuable resources while safeguarding the interests of landowners and mineral rights holders.

Effective mineral management hinges on trust and relies on the development of strong client relationships. The maintenance of that trust is imperative as the oil and gas industry undergoes a transformation, along with the global landscape.

Artificial intelligence (AI) is leading this transformation, which is revolutionizing business operations across most industries. AI brings efficiency, insightful data analysis, and elevated client results to the table. It’s becoming increasingly accessible and has the potential to exponentially enhance the client experience.

AI enables organizations to streamline data collection and analysis processes. Fundamentally, AI leverages complex algorithms to process extensive datasets, discern patterns, and predict outcomes. Its impact on the oil and gas sector is profound, particularly in simplifying and streamlining production and exploration processes. However, the impact on data collection and analysis can’t be overlooked as a tremendous added value.

Within this AI revolution, terms like machine learning, deep learning, generative AI, and predictive analytics are commonplace. These concepts revolve around AI’s ability to process and interpret data effectively, utilizing it to make recommendations, deliver predictions, and enhance user experiences. Machine learning is the foundation, while deep learning takes the processing of various data formats to a higher level. Generative AI produces new content, and predictive analytics leverages data for forecasting future trends and events.

Trust and security play a pivotal role, particularly in the context of mineral and royalty data. The shift to AI-driven solutions must include building and maintaining trust. Through the development of proprietary AI ecosystems that rely on verified data, rather than open internet sources, those with data can increase the impact of that data. This proprietary ecosystem approach ensures that AI recommendations, feedback, and analytics are grounded in reliable exclusive data, instilling confidence and security among industry stakeholders.

AI’s integration into mineral management operations promises to enhance client services significantly. And further still, the true potential of AI is increased exponentially when it collaborates with human expertise. Expert teams in mineral management, exemplified by Valor, play a critical role in harnessing AI capabilities to meet the unique needs of clients. Valor’s team, made up of Certified Trust Fiduciary Advisors (CTFA), Certified Public Accountants (CPA), Certified Mineral Managers (CMM), and Certified Professional Landmen (CPL), adds unique value to AI optimizations.

AI transcends departmental boundaries, benefiting functions such as marketing, sales, operations, risk assessment, legal analysis, research and development, and financial planning. This transformative technology fosters collaboration among diverse talents within organizations, all driven by the common goal of serving clients more effectively.

Historically, the oil and gas industry has been slow to invest in AI professionals, making it essential for oil and gas enterprises to get on board with AI specialists. These efforts can deliver tools, train personnel, and facilitate the seamless integration of AI-driven solutions into daily operations. 

Effective mineral management requires in-depth data, which when combined with knowledgeable professionals and appropriate AI functionality, brings new insights and understanding. Valor’s commitment to providing “best in class” mineral management service includes a dedication to innovation including building a team around the core value of Relentless Innovation.

Valor, led by Founder and CEO Joseph DeWoody, is dedicated to driving innovation in the oil and gas sector. Joseph’s vision and investment have propelled Valor into a leading role, shaping the future of mineral management.

“Since 2018, we’ve invested millions of dollars into R&D, software development, and innovation. I’m proud of how Valor is advancing with the times, not only supporting but also championing AI initiatives in our operations and data management to shape the future of the oil and gas industry,” stated Joseph DeWoody, Co-founder and CEO, Valor.

AI’s transformative potential in mineral management and the broader oil and gas industry is evident. It streamlines processes, enhances insights, and elevates client services. Valor, driven by relentless innovation and committed to best-in-class client service, stands as a leader in this evolving landscape, poised to shape the future of mineral management in the dynamic oil and gas sector.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Property taxes are a form of taxation imposed by local governments on the ownership of property, including both real estate and personal property. These taxes are essential for funding community services like schools, roads, and emergency services.

For mineral owners, property taxes apply to the mineral rights they own, which are considered real property. This means that just like a homeowner pays property taxes on their land or house, a mineral owner must pay taxes on their mineral interests.

How Property Taxes Work for Mineral Owners

When you own mineral rights, local authorities assess the value of your property, including its estimated potential revenue from oil and gas production. The assessed value is multiplied by the local tax rate to determine the amount of taxes owed.

Mineral owners typically receive property tax statements annually, reflecting taxes on their mineral interests. These statements are based on production values from the prior year, meaning it’s essential for owners to be aware of production reports and the valuation process.

The Impact of Property Taxes on Mineral Owners

Property taxes on mineral interests can significantly impact a mineral owner’s revenue, especially if the valuation is high or if production is inconsistent. A tax burden that exceeds the mineral income could result in financial strain, leading some owners to question the fairness of the assessed value.

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Understanding Property Taxes: What Are They?

Property taxes are a form of taxation imposed by local governments on the ownership of property, including both real estate and personal property. These taxes are essential for funding community services like schools, roads, and emergency services.

For mineral owners, property taxes apply to the mineral rights they own, which are considered real property. This means that just like a homeowner pays property taxes on their land or house, a mineral owner must pay taxes on their mineral interests.

How Property Taxes Work for Mineral Owners

When you own mineral rights, local authorities assess the value of your property, including its estimated potential revenue from oil and gas production. The assessed value is multiplied by the local tax rate to determine the amount of taxes owed.

Mineral owners typically receive property tax statements annually, reflecting taxes on their mineral interests. These statements are based on production values from the prior year, meaning it’s essential for owners to be aware of production reports and the valuation process.

The Impact of Property Taxes on Mineral Owners

Property taxes on mineral interests can significantly impact a mineral owner’s revenue, especially if the valuation is high or if production is inconsistent. A tax burden that exceeds the mineral income could result in financial strain, leading some owners to question the fairness of the assessed value.

Ignoring Property Tax Statement Accuracy: Why It’s Risky

Mineral owners must carefully review their property tax statements to ensure accuracy. Local authorities may over-assess the value of mineral rights or fail to account for declining production, leading to inflated tax bills.

Common issues mineral owners face include:

• Overvalued assessments: If production has decreased, but the assessed value doesn’t reflect this, the taxes owed may be higher than they should be.
• Incorrect ownership information: Errors in ownership data can result in tax liabilities being placed on the wrong individual.
• Suspended or missing funds: If property taxes aren’t paid accurately, revenue can be withheld by operators or distributed incorrectly.

Ignoring these issues can lead to financial loss or even legal disputes over unpaid taxes, making proactive management essential.

How a Mineral Management Company Like Valor Can Help

A professional mineral management company like Valor can help mineral owners avoid these risks by taking a proactive approach to property tax management. Here’s how:

• Accurate Review of Property Tax Statements: Valor ensures all property tax statements are carefully reviewed to verify the accuracy of assessed values and ownership information.
• Appealing Incorrect Assessments: If property values seem overinflated, Valor can guide you through the process of appealing incorrect tax assessments, helping you reduce your tax burden.
• Monitoring Production Changes: Valor can support tracking production changes and ensures that tax statements reflect the latest production data, avoiding overpayment.
• Timely Payments and Reporting: Ensuring property tax payments stay on schedule is essential to avoid penalties or revenue suspension. Valor completes timely reviews to ensure clients have sufficient time to make their payments accurately and on schedule.

Property taxes are a critical part of owning mineral rights, and while they can be complex, staying on top of them is essential to protect your revenue. Ignoring tax statement accuracy or mismanaging payments can result in unnecessary costs and legal trouble. With the help of a mineral management company like Valor, you can be confident that your property taxes are managed accurately and proactively, ensuring the long-term success of your mineral assets.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Explore how Valor’s advanced AI solutions, paired with real-world expertise, revolutionize mineral management and oil and gas outsourcing.

In the dynamic and complex world of oil and gas, leading the charge requires more than just adaptation; it demands innovation and foresight. At Valor, we embody relentless innovation as a core value—not only adapting to industry changes but actively shaping them. By integrating advanced artificial intelligence (AI) with the deep, lived experiences of our team, we equip our clients with unmatched operational efficiencies and profound insights. This dual approach transforms the management of mineral rights and operator back-office services by making complex data both accessible and actionable. Our unique combination of cutting-edge technology and seasoned expertise ensures that our solutions are not just theoretical but are grounded in real-world applicability, keeping us and our clients at the forefront of industry advancements

What is Artificial Intelligence (AI)? 

Artificial Intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. This innovative technology encompasses a range of capabilities, from processing large volumes of data at incredible speeds to recognizing patterns and making decisions. AI can automate complex and repetitive tasks, provide insightful analytics, and enhance decision-making processes. In industries like oil and gas, AI applications can drive efficiency, improve security, and optimize operations, transforming how companies operate and deliver services to their clients

At a high level, AI significantly enhances the scope and effectiveness of our services in mineral management and oil and gas outsourcing. Below are some key ways Valor is leveraging AI to bring tangible benefits to our clients.

Enhanced data analysis and insights

Many of our clients come to us with decades of accumulated data, which can be overwhelming and underutilized without the right tools. At Valor, we employ AI and our proprietary mineral management software, mineral.tech®, to digest this extensive historical data, transforming it into a manageable and useful resource. Our advanced AI systems analyze this data to uncover trends, predict outcomes, and provide new insights that were previously difficult to obtain. This process not only simplifies complex data sets but also unlocks their full potential, helping our clients to see their historical data as a valuable asset rather than an unwieldy burden.

Operational efficiencies

Our AI solutions can help automate routine tasks such as data entry, calculations, and reporting. While these efficiencies might not always be visible on the front end, they are monumental in streamlining backend operations. These automations not only speed up processes and reduces the potential for human error but also conserve vital time and resources. By alleviating the need for manual intervention in these areas, our team can redirect their focus toward more strategic initiatives that require extensive manpower and deep industry expertise. This shift not only enhances productivity but also amplifies our operational agility, providing substantial value to our clients.

Improved decision making

At Valor, we recognize that the cornerstone of effective decision-making in the oil and gas industry is both the quality of data and the depth of industry expertise. Our proprietary mineral management software, mineral.tech®, enhanced by sophisticated AI, not only improves data accuracy but also amplifies its utility, enabling more informed decisions. This AI supplementation validates and extends our team’s extensive experience, directly addressing the challenges our clients face. By combining AI-driven insights with our firsthand industry knowledge, we provide a dual advantage: reliable, high-quality data and practical, experienced-based guidance. 

Advanced security measures

At Valor, the security of our clients’ data and financial information is of utmost importance. We have demonstrated our commitment to maintaining the highest security standards by completing the SOC 1 Type I and II audits, which assess the effectiveness of our internal controls. Taking security measures one step further, we incorporate AI technologies to enhance our protective capabilities. AI plays a crucial role by continuously monitoring our systems and our proprietary software, mineral.tech®, to detect and respond to potential threats in real time. This proactive approach ensures that all client information remains secure and protected. AI in security works by analyzing data patterns to identify anomalies that may indicate a security breach. Once a potential threat is detected, the system can automatically initiate defensive protocols without human intervention, thereby reducing response times and minimizing potential damage. This not only reinforces the security of our digital environment but also builds trust with our clients, ensuring they feel confident in the safety of their sensitive information.

AI and mineral.tech®

Integrating AI with our proprietary software, mineral.tech®, revolutionizes how we manage and process data, enhancing our capabilities to quickly and efficiently digest large volumes of information. AI algorithms meticulously analyze and interpret complex datasets, uncovering patterns and insights that surpass traditional analysis methods. Through this powerful synergy, mineral.tech® not only streamlines the data processing workflow but also elevates the accuracy and reliability of the data outputs, ensuring that our clients benefit from the most advanced and effective solutions tailored to their needs.

At Valor, we enhance our mineral management and outsourcing services by integrating advanced AI technology with our team’s extensive industry experience. This strategic combination positions our clients to effectively meet today’s challenges and seize tomorrow’s opportunities. By leveraging AI, we ensure that every decision is supported by robust data and unparalleled industry expertise, providing a comprehensive advantage in the market.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

In the month of October, our team is gearing up for some very busy schedules as we attend multiple conferences and sponsor various events within our community. These engagements not only underscore our commitment to industry excellence and community enrichment but also provide an exciting opportunity for us to connect with those involved in the oil and gas industry. We hope to see some familiar faces as we hit the road this October!

TLMA Statewide Members Meeting – October 8, 2024

We are excited to be returning as an exhibitor to the Texas Land and Mineral Owners Association Statewide Members Meeting for the third year in a row. TLMA has embarked on a mission to level the playing field in the oil and gas industry by directly advocating for land and mineral owners’ interests, focusing predominantly on the Texas Legislature. Our team will have a table set up in the exhibitor space. If you are attending the meeting, please stop by our booth and say hello!

2024 National NARO Convention – October 16 – 19, 2024

The Valor team is headed to Houston, TX where we will be sponsoring the National NARO Convention. We look forward to meeting with other mineral and royalty owners from across the country and enhancing our knowledge of the latest updates in the industry. Planning to attend? Connect with us!

Mayor Parker’s 2024 State of the City – October 24, 2024

Valor is excited to attend the 2024 State of the City address for the third consecutive year, joining fellow business and community leaders to learn more about the accomplishments, opportunities, and future vision for our hometown, Fort Worth. We look forward to hearing Mayor Parker’s insights and celebrating Fort Worth’s continued success.

D CEO 2024 Energy Awards – October 29, 2024

The D CEO Energy Awards celebrate the camaraderie, innovation, and commitment to a sustainable future within the energy sector, recognizing leaders and companies in both renewable energy and oil and gas. Valor’s president and co-founder, Joseph DeWoody, has been named a finalist in the Excellence in Technology & Innovation category, honoring his outstanding contributions to technological advancements and innovative solutions in the energy industry.

We hope to see you at one of these events!

Not able to make it but want to connect with the Valor team? Click here!