The confluence of three powerful trends has created the right asset in the right structure at the right time.
ASSET – Large oil & gas mineral funds need to buy in order to grow.
High growth: public mineral & royalty funds have grown from $2 billion in 2015 to over $15 billion today, with an estimated 30% growth rate going forward.
High demand: these institutions are willing & able buyers of aggregated mineral & royalty interests, creating a natural exit for EOF’s portfolio.
STRUCTURE – QOZs enable investors to defer, reduce, & eliminate taxes.
Tax deferral: payment of the capital gains tax on the original investment is deferred until December 31, 2026.
Tax reduction: 10% step-up in basis reduces capital gains tax after 5 years.
Tax elimination: zero capital gains tax on profits made in EOF after 10 years.
TIMING – Independent oil & gas mineral owners need to sell to counter COVID-19 damage.
Oil drop: global demand destruction from COVID-19 lockdowns has caused a low point in the oil & gas commodity cycle.
Minimal income: royalty checks for many individual mineral owners are down 50% to 100% (shut-ins), resulting in a substantial loss of income.
Taxes due: federal and property tax bills are coming due for last year’s record royalty income generation.