Transaction-size flexibility.
Royalty ownership lets you size the investment to the exchange. Whether you need $100,000 or $5,000,000 of replacement property, we can carve out the exact interest that fits.
$100K – $5M+ carve-outs
Royalty advantages
The case for energy royalties in a 1031 exchange.
Producing oil and gas royalties are real property for 1031 purposes, which makes them a qualifying replacement for a real-estate sale — or a place to put leftover equity that would otherwise be taxable boot. Here is why mineral owners and real-estate exchangers add them to the mix.
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Royalty advantages, explained.
A short overview of how producing energy royalties fit inside a 1031 exchange.
Royalties in a 1031
A triple-net asset, without the building.
With cap rates on triple-net real estate compressed to some of their lowest levels in decades, exchangers are looking past traditional replacement property. One answer is producing energy royalties: owners receive a share of the monthly revenue from wells operated on their acreage.
Unlike a drilling investment, a royalty holder is never billed for exploration, drilling, or operating costs, and carries none of the liabilities of running a well — the triple-net version of an energy asset. Many exchangers also use royalties to absorb leftover equity and avoid boot after a primary real-estate purchase.
Often viewed as a hedge against inflation, royalties carry a return profile and a low correlation to real estate that make them worth weighing when mapping out replacement options.
Why owners choose royalties
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Six advantages worth weighing.
Each one maps to a real reason exchangers allocate part of a 1031 into producing royalties.
Superior cash-flow potential.
Peregrine targets royalty packages whose annual yield runs well above the cap rate available on comparable triple-net real estate today.
Targets ~2× comparable real-estate yield
No capital calls.
Investors in drilling programs and tenant-in-common offerings can be hit with future capital calls. Royalty owners are not — you never owe more than your purchase.
Zero future funding obligation
Investor independence.
Undivided royalty interests are not tied to a shared ownership structure. Each owner controls their own holding period and exit strategy.
You set the hold and the exit
Tax savings.
The percentage-depletion deduction shields roughly 15% of royalty income from tax each year — regardless of the carry-over basis from the property you exchanged out of.
~15% of income depletion-shielded
Portfolio diversification.
Cash flow from multiple producing wells — plus undeveloped acreage for future production — eases the risk of owning a single property or over-concentrating in traditional real estate.
Many wells, many basins
Royalties carry real risk: commodity prices, production declines, and liquidity all affect value, and yields are typical targets, not guarantees. Nothing here is tax, legal, or investment advice — confirm treatment with your own CPA before exchanging.