I have been getting offers to sell my mineral rights. Last night, I had an offer of $12,000 an acre. I said I wasn't interested. But how do I determine which will get me more money--mineral rights or royalties. First of all, I have no way of knowing how much royalties would be if I were to get in a unit. Is there a range of amounts for royalties? How much per acre? I also heard that these fracked wells have a life of about 7 years, with a dramatic drop off in productions after the first year. Comments?
I agree selling your royalty interest sounds and probably is so much safer. Although I'm sure it would be less money but for peace of mind well worth it
Very helpful response!
A few thoughts:
The contracts I have entered into, to sell minerals, have not addressed any surface issues, or provided any rights to the surface. Leases surely do.
The tax consequences of selling versus leasing matter as much as the price.
A lease for a 100 acres at 7k per acre, will likely net 350-375k, with a 75% chance at future royalties.
In my opinion, the best model, at the moment, is leasing first, and then selling the royalty interests. In my area (Shortcreek, Harrison), a lease is 6k, the sale of the royalty interests is 8k, for a total of 14k. After capital gains, you are sitting with a million +/- (with no future royalties).
However, in my opinion, it is largely a personal financial decision, how old are you, do you have kids, is there a good place to put the money, are you currently financially secure, etc
In our case, we buy land which has appreciated at 10%+. we buy cattle which produce half their value each year, stocks were up 20% plus this past year, a commercial building produces income each month, and was tax free to buy, etc.
We control the money, and it is out of risk.
A friend of mine leased land in Stark County for $2100, and subsequently sold the royalty interest for $2200. Today the offer on both would be zero.
Trying to anticipate the thinking of the gas and oil companies is impossible, gas prices ebb and flow, maps change, disinformation is everywhere, and it is difficult to make judgements.
subsurface trumps surface!
sorry I don't believe that line crap! I sold what was in the untica only!! I don't believe in a trumping it just tactic to scare people not to sell! we aren't playing cards....lol
Have you asked the companies who want to buy to make you a lease offer?
My sister and I have been offered leases for our mineral rights in Marion County, WV. We do not have the surface. When I have asked for a purchase price to compare to the lease, their offer has been $200-300/acre more than the signing bonus. We have not been interested in that.
Susan - there is a difference between you selling royalty rights and you selling minerals. Most companies want to buy your minerals. I am aware of at least one company that will instead buy only your royalty rights. The distinction is that if you sell your minerals, you pretty much lose all control over your property - the mineral owner is free to execute new leases on your property under whatever terms they desire and they keep all of the benefits from such lease. If you sell only a royalty interest, you maintain control over what type of lease can be signed and what can be done on your land. If your property is already subject to a lease, there is not a lot of difference between a mineral and royalty sale while that lease remains in effect; the difference kicks in if and when that existing lease would ever expire.
Hope that helps.
Yes it does.
I think in Guernsey you would likely be offered $4000 to $7000 / acre in bonus money to sign a 5 year lease and a royalty of 18-22%. I would be very hesitant to sell your minerals. I do not know your age or how desperate you are for the money? Some companies will buy a fractional interest of your mineral rights. If you sell them 50% then when the property is leased you would split the bonus money. Another way would be to sub-divide the property into two 13 acre tracts. Sell them the minerals on just one tract. I also suggest that you get Buckeye Minerals to pay for the cost of the sub-division. If you want to sell your mineral rights, you may be better served by an auction with a reserve. With a reserve, the mineral rights are not sold unless the reserve dollar amount is reached or exceeded. If you use an auction, you want to make sure that a number of companies who buy mineral rights are notified of time and date. The final way to sell mineral rights is to solicit sealed bids to be opened on a particular date. In this case you would also want to be sure that a number of companies who buy mineral rights know about the time and place where the bids will be opened. It is possible to conduct such a sale with the proviso that "Seller refuses in his or her sole discretion to reject and bid that it deems to be inadequate." I hope my comments are helpful and that you make the best decision for your particular financial situation.
Thank you. I am going to hold. Not desperate for money.