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 Annie Miller on July 1, 2016 at 6:37am
IMHO, much depends on the area your acreage is, i.e., is proximity to high production wells; your age, and whether you want your heirs to have your royalty benefits.

How long is the likely hood of you collecting royalties ? There is a huge difference between an 80 year old with no heirs and a 50 something with no heirs.
Permalink Reply by Shon Lenzo on July 1, 2016 at 4:32pm
That is very true, Annie...
Everything is relative!
Permalink Reply by Shon Lenzo on July 1, 2016 at 4:37pm
After going through boom and bust
As well as experience in other business, i would say this:
Nothing has an 'actual' value.
The value of anything,
Is only what is agreed to by a willing buyer and seller.
Permalink Reply by David Allen Lilly on July 2, 2016 at 2:20am

It isn't that simple.

If you were a mineral buyer looking at buying Mr. Lenzo's mineral lease this is what you would do:

Read the lease terms and locate the property, research as much as you can what others have accomplished with their wells in the area.

Add it all up and conclude a high end and low end value to the lifetime of the lease.

What would Mr. Lenzo sell for, is he desperate, does he know the approximate value of his lease?

Has Mr. Lenzo spent any time researching hi situation or has he paid someone to research it and advise him ?

They don't know for sure, so lets say they calculated your lifetime payout on the high end at $1,000,000 and the low end at $100,000. The swing will probably not be that wide, I like using round numbers for purposes of discussion.

Knowing that you, as the buyer, are accepting ALL of the financial risk, what will you offer ?

Will you start high, or low ?

In about 2008 the first land man coming around here signed many of my neighbors up for $10 an acre. Before long they had to raise it to $500, then $800, then $1500, $3250 and so on, you get the picture.

Well you should know that the buyers are going to go low off of the low end of the scale, because it makes the most sense for them, and is the safest they can be.

It is not their desire or their job to be generous. If they hit big on buying your lease it means you lost big.

You may have a property that you cannot get unitized or leased, the buyers will discover this too and your offer will be very no or not at all.

At the end of the day if your lease has value someone will offer you something for it, we have argued over what percentage of anticipated value you can expect to be offered but we all know that it will start low and not get anywhere near what the lease will very likely pay out over its lifetime, knowing that the lease has value because someone is offering you something for it.

I have heard the talking points for selling and I simply do not buy into the vast majority of them.

Maybe in a very, very small percentage of cases it makes sense to sell, but in my opinion most folks who sell have given away vast potential sums of wealth. You can probably be pretty safe knowing that any offer will not be much higher than 25% of the expected lifetime payout, in the best case scenario.

I also believe very strongly that a down market in the beginning of an upturn is a really bad time to sell.

All just my opinions based on what I have learned about this stuff over the last few years, from a guy who stands to gain nothing no matter what you do with your minerals.

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