Selling Mineral Rights

Hi, has anyone been approached with offers to buy your mineral rights?  We just had a very lucritive offer from a company ..... $5,000 per acre.    Just wondered if any other have had such offers. 

Views: 4042

▶ Reply to This

Replies to This Discussion

Permalink Reply by Mickgyver on June 21, 2018 at 3:04am
check for area potential production and if you live near area being sold . the tax basis is better than royalty taxes but long term production could pay better . A friend of mine has 79 acres in a unit and he is in a throttled down unit producing mainly gas and he still got over $300,000 in royalties last year .
Permalink Reply by David Allen Lilly on June 21, 2018 at 1:40pm

Mr. Holliday,

Please consider this:

Your minerals have a quantifiable value which is an educated guess, but you don't know the number. I bet your buyer knows, or at least he knows far, far closer than you do.

What I will promise you is this.

You will, at best, get a small fraction of the worth of your minerals. These buyers rarely make a mistake. They will start you off at about 15 cents on the dollar and the top you might get will be 50 cents on the dollar, which amount is rarely ever paid.

There is no way around it, you are giving your money away for the pleasure of having 15% of the life of your lease up front. And if there is ever another formation on your property you will most likely sign that away too.

There is simply no way that a buyer, who is really an investor, is going to risk losing money by offering you more than the barest of minimum.

They are your minerals and you are free to do with them as you wish with no hard feelings from me but I cannot believe that it is ever to the advantage of the owner to give away most of his money in a mineral sale.

Cue the slings and arrows from the mineral buyers who troll this site.

David.

PS

We have 12.5 acres in a unit developed by Chesapeake Energy, who hasn't been at all as I was assured they would be. We were placed into production with the worst timing in the oil markets but even so we burned passed the $5000 an acre mark quickly. I would jump off a cliff had I sold my minerals for that amount, or any amount that would realistically be paid.

Permalink Reply by Mitchell R Holliday on June 21, 2018 at 1:49pm

I can see your point but we are both up in age and could use some money right now.  I doubt that we will ever see a well site on our property or be included in a plat in our lifetime.  There is a well going in about 2 miles from us but doesn't include our property.   Our land borders a County Park (1400+ acres) and I doubt the County will sign a lease in our life time.   The offer made to us could change our lives substantially. 

Permalink Reply by David Allen Lilly on June 22, 2018 at 12:52am

I don't know of your age or financial situation but my advice is till the same. I have always been surprised by how fluid the situation is, those who started first thinking they would finish first and those who said they would never get drilled find their situations flipped. You say the offer given you was "very lucrative". It may not be as lucrative as you believe.

As I stated in my comment, the potential buyer knows far more about your mineral development potential than you do. If they are willing to pay you $5000 an acre you can bet that they believe it is going to be developed regardless of the county park you border.

I have seen the age argument many times. All I can tell you is there are any number of people I would rather give my money away to, and that is what you are doing with every penny above the $5000 an acre amount, other than mineral buyers.

Respectfully, your communications read as if you have very little factual knowledge of the situation you are entering and at the same time are trying to convince yourself to do what it very much looks like you wanted to do from the start.

I am curious, what is "up in age" ?

Permalink Reply by Mitchell R Holliday on June 22, 2018 at 4:33am

80 yrs. 

Permalink Reply by deutchen on June 22, 2018 at 9:21am

The best financial decision I made in my entire life was selling 1/2 my mineral rights 4 years ago. That was right before the crash in oil & gas prices. The worst decision was not selling all of it at that time. I was in good financial shape before the sale so that wasn't a factor but who couldn't use $500,000. The amount of money your minerals are worth may drop due to any number of factors. You may be boxed in between wells, towns or other things that make it impossible to be included in a drilling unit. It could be that you're in a wet gas area when dry gas is in favor so your area is not of interest to drillers at this time. Both of those things were a large factor in my mineral rights losing a significant amount of their value and my guess is there are many other reasons why your mineral rights can lose value or actually become worthless. Also, I'd guess for any number of reasons there is only a small fraction of land that has been leased that has actually been drilled in the last 5 years or will in the next 5 years. 

    I think the fact that you have something valuable now that may become worthless should be a factor in deciding what to do. Your mineral rights are an asset just like stocks or bonds. If you had $1,000,000 would you put it all in one stock or would you diversify. That's why I think any person no matter what their financial situation or age would do well to consider selling at least some part if they get an offer that is reasonable. I realize there are people who say that you shouldn't sell any of your minerals no matter what unless you're broke. Based on my experience I strongly disagree. 

Permalink Reply by David Allen Lilly on June 22, 2018 at 11:16am

Deutchen,

How much of the worth of your lease did you give up by selling your minerals ?

How many months of your lease did you get paid for before you started giving your royalties to your buyer ?

Permalink Reply by deutchen on June 22, 2018 at 12:37pm

I sold half my rights for $10,000/acre. My lease was renewed for $2000/acre. Several other people in my area who had signed later in 2011 and gotten more initially for a bonus didn't get their lease renewed from Gulfport.

As far as royalties, there have been none & I seriously doubt there ever will be.

Permalink Reply by David Allen Lilly on June 23, 2018 at 2:50am

Good for you.

It appears that the buyer made a mistake in the early days of the oil rush and you benefited. Every comment I make is in that direction, wanting and hoping for the landowner to benefit from his asset as best he possibly can.

What do you think are the odds that another landowner will find selling his minerals as beneficial as you did, because I find it highly unlikely ?

My opinion is that the industry has weeded out the kind of mistakes your buyer made back in 2011, and I fear that a full explanation of the particulars of your particular scenario should come with a word of caution to others that your situation is not typical.

In the vast, vast majority of scenarios selling is a loss for the landowner, would you agree ?

Permalink Reply by deutchen on June 23, 2018 at 2:53pm

I'd say that for sure a landowner is taking a big loss if he sells land that is sure to be drilled but all or a large portion of that land may never be drilled. I look at mineral rights as an asset just like stocks, bonds, land, or any other marketable commodity. Each type of asset has a different chance of losing value, gaining value or becoming totally worthless. That's why people diversify so that they can spread out their risk. Say a person has $100,000 in stocks, $100,000 in bonds and  mineral rights on say 100 acres with a current  market value of $1,000,000. Each of those assets has a risk of losing value and the possibility of making money. The risk & possibility of returns from bonds is relatively low. With stocks you're taking more of a gamble. The range of possible risks & returns is very wide & a person needs to position themselves according to the amount of risk they are comfortable with. With mineral rights the possibility of returns is high. Every person probably has a different idea of what the level of risk is. In my opinion it is fairly high. For that reason I think this person would be wise to sell a portion of their mineral rights since it makes up such a large portion of his net worth & put it in something else, land, stocks, bonds or whatever.

   People with a different proportion of assets in different things & different levels of risk they feel comfortable with might do things entirely differently but I think these are things to be considered when deciding whether to sell a portion of their mineral rights and how much it would best to sell if they did.

 

Permalink Reply by william george allison on June 23, 2018 at 5:25am

also if your not into the second term the new owner of your minerals will get the bonus money when the second term comes into play so in reality your not getting $5000 an acre you have to subtract the bonus money from that amount you wonder how many people sell right before the second term not thinking of the bonus money 

Permalink Reply by Mike Sero on June 24, 2018 at 7:26am

if they renew the lease

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service