Selling MIneral Rights vs. Royalities

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?

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Permalink Reply by INVICTUS on January 20, 2014 at 3:13am

From what I am being advised by my O/G Attorney (Decades of experience) the majority interest retains substantial, but not absolute control of the surface rights. The newly added partner's relationship will be defined within the agreement between the landowner who is selling the interest and the NEW partner who is negotiating his new cut.

There are nuances to this that provide great peril to landowners who only see dollar signs floating above their heads!

IMHO, Terms and conditions should be AT LEAST equal in importance to the money when negotiation, especially if one intends to retain ownership control over the surface in the future.

Other options for landowners include selling the right to the royalties, or, selling fractional undivided interest in the whole property, or parceling out the property and selling whole are parts of that properties subsurface rights, etc etc.....

Other questions to ask (which really concerns a number of people now) is what about the pipelines?

Please remember (and hardly anyone has addressed this), ALL leases include the right to "transport" or "remove" the product from the leased property!

That means (If they drain you)  they can stick a pipeline on you! Period.

Unless your lease specifically declines this in writing.

And they DO NOT have to pay you to put that line in If you are being drained.

Permalink Reply by evan on January 20, 2014 at 4:33am

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

Permalink Reply by Rick on January 21, 2014 at 2:43pm

like

Permalink Reply by Susan A Tippel on January 20, 2014 at 4:47am

Very helpful response!

Permalink Reply by james coffelt on January 21, 2014 at 1:21am

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.

Permalink Reply by Rick on June 30, 2014 at 10:17pm

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

Permalink Reply by Lisa McKenzie on January 21, 2014 at 5:47am

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.

Permalink Reply by E Johnson on January 21, 2014 at 6:01am

Permalink Reply by E Johnson on January 21, 2014 at 6:05am

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.

Permalink Reply by Susan A Tippel on January 21, 2014 at 7:12am

Yes it does.

Permalink Reply by Samuel J. Orr on January 23, 2014 at 10:22am

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.

Permalink Reply by Susan A Tippel on January 24, 2014 at 2:01am

Thank you.  I am going to hold.  Not desperate for money.

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