Offers to purchase mineral rights more aggressive lately?

Has anyone noticed the offers to purchase mineral rights becoming more aggressive lately?  It used to be letters would come in the mail a couple times a month giving a name and number to call if you wanted to consider selling your minerals.  Then weekly postcards.  Now actual offer letters to purchase wanting you to sign, date and have the form notarized. I was kind of shocked when I saw this because it gives how many acres total, where they are, deed pages (how they came to you etc.), and a number they are willing to pay for your portion of the acreage.  I thought it was pretty tricky and clever on the part of the purchaser because I bet they get a lot more "hits" this way and what people may not realize is this isn't an offer to negotiate or to learn about what they are talking about but an actual sale.  Once you sign, notarize and send this thing back in that's it you get a1x check - pursuant to you owning the minerals - they get the minerals.  You, as the seller, can't go back and say no.

I would never consider selling but how much do you think mineral purchasers offer in comparison to what an owner could get out of their minerals if drilled etc.?  Do you think they offer 10%, 20% etc of what they feel the minerals will be worth?

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Permalink Reply by LERRET on June 8, 2016 at 10:14am

Maybe our elected officials will put a stop to this practice of landowners selling worthless royalties.

If you did not do your own due diligence why would you expect it to make money? Did you hire a geologist?  Why blame the owner for selling? If you made a risky investment with a minimum of information beyond the seller's word...what can I say?

Permalink Reply by Joseph-Ohio on June 30, 2016 at 5:06pm

I see 'the market' as 'manipulated'.

To me there is no such thing as a 'worthless royalty'.

I see 'the market' as a manipulated element and the value of the commodities traded, manipulated (pending 'developer desires' which change over time', technology and politics).

Labeling a 'royalty' as valueless / or worthless is the same thing as labeling the developed commodities being traded as valueless / worthless - which is, of course, a 'total crock of horse puckey'.

JMHOs

3p4ekx80ulfbvPermalink Reply by 3p4ekx80ulfbv on June 30, 2016 at 3:57pm

Lol...that's HILARIOUS

Permalink Reply by Joseph-Ohio on June 30, 2016 at 5:05pm

Not so much 'HILARIOUS' as deceptive.

3p4ekx80ulfbvPermalink Reply by 3p4ekx80ulfbv on June 30, 2016 at 5:18pm

I think it's hilarious that some guy thinks lawmakers should create a law barring landowners from selling worthless mineral rights.....they weren't worthless. ...if he didn't buy them someone else would have....maybe for more money.....did that landowner see $26 oil and 1.68 ng on the horizon? ....hell, NO ONE did at the time

Permalink Reply by Joseph-Ohio on June 30, 2016 at 5:15pm

I see 'the market' as 'manipulated'.

To me there is no such thing as a 'worthless royalty'.

I see 'the market' as a manipulated element and the value of the commodities traded, manipulated (pending 'developer desires' which change over time', technology and politics).

Labeling a 'royalty' as valueless / or worthless is the same thing as labeling the developed commodities being traded as valueless / worthless - which is, of course, a 'total crock of horse puckey'.

JMHOs

Permalink Reply by Jonathan H on June 7, 2016 at 4:46pm

A few thoughts to consider:

I think it is prudent to do some research on what your potential royalties are so that you have a threshold of potential future income. Yes, actually getting paid them is another matter. So are taxes and the amount of time it takes to get the money.

In my case, I set a per acre amount I would sell for - before the drop in values, the offers were inching towards it. At current prices, the last offer I got, in summer of 2015, was worth considering.

These are the steps I have done for a rough appraisal of my mineral rights:

- Researched actual local production through the Ohio DNR website,

- Calculate 3 years of production at that rate (based on the premise that around 80% of production is in the first 2 years, the third covers the rest). Make sure you verify the time period for production numbers! Some units are monthly, some quarterly, and some report 6 months at a time.

- Looked up unit sizes for those local wells to get per acre production.

In my case, at current gas prices and production, I could expect approximately in the neighborhood of $12,000 per acre from the Utica Shale.

If prices go up in the future, which I expect they will, then that amount will increase.

I don't agree that most mineral offers are 10% of the value of the minerals - are there some that offer that? Yes, most definitely! But others whom are more reputable offer substantially more; I have received multiple offers of more than $6,000 an acre for my minerals.

The rule of thumb I have heard is that the buyers aim to double their money in 4 years or quadruple it in 10 years, and that they expect to make a profit on 75% of their purchases. Of course these are approximate numbers; some aim higher or lower (or turn out higher or lower due to the quality of their research or decisions of what to buy).

Like James Monyack said, some deals don't turn out; if you sell your minerals, you may get money you would never have seen otherwise.

One thing to consider with a big mineral buyer is that they have more resources to get the drilling company to pay full royalties than you - they can afford lawyers, accountants, etc, so that they can get more out of the acreage than you are likely to be able to. Is it right? Of course not - but it is a factor to keep in mind as you value mineral rights.

Permalink Reply by LERRET on June 8, 2016 at 10:21am

Everyone is going to be calculated the same. Being a larger royalty company is not going to matter. However, the mineral company has a different risk profile and is spreading risk between numerous investments and properties.

Further, if they can obtain the property before it is leased, then they can negotiate for a higher royalty or, as many do, actually convert that to a working interest.  I never recommend that an individual take their mineral as a working interest.  But for some that is a way to increase the take if the wells are good. 

For most people, the buyer of their mineral is simply accumulating mineral properties and bundling them to flip.  They may have a larger royalty company buying them that may buy only $5,000,000 or more at a time.  Most of them are making commissions for all practical purposes and add from 10 to 25% to the cost of the individual leases to flip to a larger company.

These larger companies in return may be putting together even larger deals to sell to hedge funds or pension funds. Many Universities have trust funds that invest in mineral rights. Some never produced but on average, the income is better than the measly 1% the money draws on interest.

Permalink Reply by James T Monyak on June 9, 2016 at 7:41am

The point I was trying to make, but I don’t believe came across is that the future revenue stream from royalties depend on too many variables.  Such as:  Market price, quantity of gas in a unit, political pressure “The Burn”,  alternative energy supply, legal ownership, energy usage/demand, level of drilling other plays, Canadian production, state tax increase, royalty deduction on checks,  ect………  Therefore, buying royalties from a land owner is a gamble and is not stealing.  The only way it would be stealing if the landowner was uneducated of the potential value, pros or cons.  One could say that would be impossible with the information available on the internet.

Permalink Reply by G.H. on June 9, 2016 at 6:52pm

Extrapolating this from your previous reply would have taken some very serious and creative reading between the lines.  That being said, I agree with what you have written here.

The payday is not 100% certain for the mineral buyers like some people make it out to be. Will they get rich off of some of the stuff they buy?  Absolutely.  Will they get rich off of everything they buy?  Not necessarily, as you have apparently learned yourself.  So many variables to take into consideration.  I also agree with you that any landowner considering selling must be educated on the topic, and this site is great for that.  I have learned a lot here.

Permalink Reply by James T Monyak on June 14, 2016 at 8:46am

You got it!  However, caution on the "absolutely rich,"  nothing is a sure thing. Trump could be elected the president and we all could be burning coal again.

Permalink Reply by Kyle Nuttall on June 14, 2016 at 3:43pm

It's going to be impossible to calculate exactly because there are variables that you just can't know before the check is cut.  However, experienced folk tell me that deductions can take an 18% royalty down to 10% no problem.  There are horror stories of deductions taking all of the royalty and then some, so the royalty owner ends up owing money for the month.  I haven't been able to verify that for myself, but someone here might be able to.

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