Business is booming for royalty owners these days. Regular readers have heard the idea of collecting oil well royalties. These companies don’t drill for oil and gas themselves. Instead, they buy interests in producing wells, then collect ongoing income that can sometimes last for decades. For investors, it’s the safer, more lucrative way to invest in the energy business. Major royalty owners pay out yields ranging from seven percent to even 27%. With oil prices back over $50.00 a barrel right now, these businesses have started to really mint money, and in turn have posted amazing share price performances over the past few months.
Take Chesapeake Granite Wash Trust (NYSE:CHKR), for example. This firm owns 40,500 gross acres across Washita County, Oklahoma. On this land, the company collects royalty income from 70 producing wells, with the potential for another 120 in development. And those assets generated a ton of cash flow. Drillers, not Chesapeake, must front the cost to drill and complete new wells. This means investors can just kick up their feet, collecting their share of the profits. You can see the advantages of this model in the company’s financial results. In 2016, Chesapeake raked in $12.4 million in revenue and converted $10.4 million into operating income. That comes out to an incredible 83% profit margin.
Source: Income Investors
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