Sunday, February 2, 2014


CASHING IN ON WIND ENERGY ROYALTY RIGHTS

When Selling Active Wind Turbine Leases to Third Party Investors.

Wow. What a market whirlwind for the 2014 American Farmer with commodity prices downgraded and global competition on the rise.  Where can “Joe Farmer” make a sound profit in this weakening producer market, and bring home the bacon if he is expected to lose money at the start of this planting season? 

With major wind farm development and build-out in most states, some landowners just need to look out the back door and strategize.

Over the years, I have written numerous articles on wind energy and land lease subject matter.  And as this energy market continues to mature in the U.S. and abroad, a growing number of investment companies are now offering lump sum cash payments to acquire wind turbine royalty rights.

These transactions largely mirror what happens in the oil and natural gas industry when a landowner is selling his/her royalty and/or mineral rights to a third party investor. 

Typically, this is how it works.  Most wind turbine buyout offers are solely based on the gross annual income as paid to the property owner by the wind farm developer. 

The potential buyer will review your wind energy lease and annual royalty payment income structure to determine its present value.  The investor will then offer a specific amount for the transfer of all ground lease/royalty rights that remain with the existing wind farm agreement.  Note: This is the time when the seller (wind turbine host) should negotiate additional rights for monetary value.  

Upon agreement, all wind lease royalty rights are released to the buyer when the contract agreement is fully executed after seeking verifiable receipt of annual payment stubs.  

These types of buyout offers are payable in the form of a lump sum cash payment to the landowner normally within 30 days. 
 
I have recently dealt with a property owner that sold his royalty rights to the highest bidder.  His property had three turbines and he sold his remaining rights to an investment firm that offered $73,000 per turbine (a total of $219,000).

Now lets strategize!  Why should one want to sell their royalty rights?  Because...business management decisions always boil down to risk verses reward, which are as follows:

·       (REWARD) Reinvestment Option:  Cash out and buy  more land tax-free using a 1031 like kind exchange.  Invest in  additional real estate, stock options, or farm equipment to avoid paying capital gains tax (as applicable).
 
·       (REWARD) Selling the Farm: Cash out and collect all royalty rights upfront before selling off the farm, land and other assets.

·       (REWARD) Increase Royalty Rights:  Increase fair market value by putting royalty rights out for bid to multiple buyers. 
 
·       (RISK) Bankruptcy:  Flower Ridge Wind Farm (Benton Co., IN) is currently suing Duke Energy over a contractual dispute for trying to back out of buying its power.

·       (RISK) Life Expectancy:  Wind farm agreements pay out over the long term (20 to 60 plus years) which usually out live the landowner.

·       (RISK) Market Liquidity:  The Consumer Price Index (CPI) that is written into the wind farm land lease doesn’t adequately increase with actual inflation over time. 

·       (RISK) Weak US Dollar:  Our government is broke, tax rates will increase and the dollar will be worth less over time.

·       (RISK) Loss of Income:  Tornadoes can wipe out turbines which may not be rebuilt; no more royalty checks.

EHS Energy is a management firm which specializes in helping landowners deal with the full impact of wind energy projects related to project development, land lease agreements and financial issues.

If you’d like more information, please contact EHS Energy at 260-582-9046 or email (Rodeagleson@gmail.com.).

This Blogsite (traffic) averages 1,500 hits per month as more and more investors are searching for wind royalty buyout deals.  These firms are enthusiastically looking for sellers.

 

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