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. 

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Permalink Reply by william george allison on June 24, 2018 at 10:15am

yes if they renew the lease .I was talking to a mineral buyer but after I got the second term bonus money the price per acre went from up to $7000 per acre to $2500 per acre .if you didn't do your home work on this site and didn't know any better they would get your bonus money and your royalties .

Permalink Reply by David Allen Lilly on June 25, 2018 at 12:32am

If a buyer is willing to purchase your mineral rights you may rest assured that they know the lease will be renewed AND that the minerals will be produced eventually.

I saw a few people in the industry make some mistakes initially when all things shale oil were red hot and the rush was on but those days are very likely gone.

I have said this over and over and it is very accurate:

IF a buyer is willing to purchase your minerals you can rest assured the buyer has far more and far better information than you and there is the highest probability that there will be a ROI to them when (not if) the minerals are developed.

Permalink Reply by Massey colt on June 21, 2018 at 2:39pm

Wells Township, Jefferson County, Ohio. They just offered $9000.00 per acre for 146 acres. Turned him down for the 10th time. Not interested.

Permalink Reply by David Allen Lilly on June 22, 2018 at 12:53am

Good for you.

Even at $9,000 an acre you will be giving away all your royalty income after the first year of production.

Permalink Reply by Jeffrey Beunier on June 25, 2018 at 9:16am

and you based that on what?  Are you a reserve engineer?  Do you know the details of his lease? What is the timing to development for his acreage?  What is the size of the unit his acreage is in?  Turning down $1.314 million ($9000/acre) maybe the right choice for him, it may even be a low ball offer - I can't tell and but I find it difficult to see how you can make a statement that he would get more in the first year of production without knowing any of his particular details.

Permalink Reply by David Allen Lilly on June 26, 2018 at 12:39am

Based on actual royalty revenue from our leased acreage in production. If I would have sold my minerals for $9000 an acre, knowing what I know now after having received royalties for two year I would never forgive myself.

Permalink Reply by David Allen Lilly on June 22, 2018 at 11:19am

Mr. Holliday,

I see your point about your age being a factor.

Still, for me it comes down to my kids and grandkid's over a mineral buyer benefiting from the land my wife and I bought and paid for.

Do you recognize that you are going to maybe get 25 cents on the dollar ?

Permalink Reply by Bullfrex on June 23, 2018 at 1:35am

Mitchell,

All the posts on this thread have merit, because EVERYONE'S financial situation is different from their neighbor's. I can see both sides of this discussion. But, in the final analysis, they are OPINIONS based on their situation and beliefs.

You could get placed in a production unit in the next year....or not in your lifetime....NO ONE really KNOWS in this business. 

In the end, it is a personal choice, dictated by your needs and wants. While it is noble to 'leave it to the kids and grandkids', you still have the remaining time here of you and your immediate other to consider.

No one has the right answer, but as deutchen writes, the best compromise could be selling a percentage of your rights. When considering taxes, selling will generally incur a lower tax hit than royalties will, depending on your financial situation.

Have you spoken with a Certified Financial Advisor to consider the ramifications of all scenarios? Might help you decide.

Best of luck to you!

Permalink Reply by Jeffrey Beunier on June 25, 2018 at 9:13am

AMEN....

Permalink Reply by Jeffrey Beunier on June 25, 2018 at 9:10am

SELLING maybe be the RIGHT THING for some mineral buyers, and it maybe the wrong thing for others. 

I've monitored and participated in posts on this blog for around 4 years now, and still find it funny that certain people are not only dead set against someone selling their mineral rights, but go on about how potential acquirers are crooks, or screwing sellers over.  There is an active market out there for minerals, if a buyer is a crook, the word will get around.  If its such a bad deal for mineral owners to not sell, then there wouldn't be sellers.

It seems these DO NOT SELL die-hards fail to acknowledge the fact that every individual mineral owner is different and has different needs. 

Furthermore, these die-hards forget to take into consideration the concept of TIME VALUE OF MONEY - a dollar today is worth more than a dollar tomorrow.  And even if they don't consider that there is a cost to money, or a need for a dollar to be worth more tomorrow to compensate for inflation, let's not forget the MASSIVE CONCENTRATION OF RISK that a mineral owner is assuming by never selling their minerals. 

The reality maybe different for each owner, but in many cases, minerals are one of the largest assets an individual may own.   Hmmm…There must be several reasons someone would want to have a large portion of their net worth concentrated in a single asset over which they have very little control on the timing of the cashflows it will generate?  Oh, hmm…another pesky little concept related to RISK  - Let's just forget the RISK due to the VOLATILITY OF COMMODITY PRICES – because as we have all seen over the last 3-4 years, natural gas prices are a sure bet, I mean they never go down, only up.  Gosh, make sure you don't take into consideration that there is a constant overhang of production in the Appalachian Basin that could crush basin differentials or price points outside the basin. I’m sure New York is going to reverse their position of no new nat gas pipelines any day now…I mean its been what 4 years since they banned frac’ing and I’m sure they have realized their mistake – right…..And all those environmentalist that forbid pipelines from getting built, will have to realize that natural gas is much better for the environment than coal…probably by the end of this week…or maybe next.

SO yes on a "let's ignore the entire concept of the time value of money, commodity risk, concentration risk, timing risk, aka the potential delays until development, or potential operator delays, potential operator risk (how many went BK??) etc, etc, etc,   YES ignore all of those RISKS and “don't sell EVER” like some people suggest because they completely understand your specific situation and needs and I'm sure if something bad happens, they will send you a nice 'hang in there' card and some cash. 

All buyers do not pay dollar for dollar to acquire the future potential stream of cash flows minerals may generate.  Buyer are making an investment that requires a rate of return to not only cover the overhead of a business, but to actually provide a sufficient return to account for the risk of the investment and pay for the cost of capital incurred.   Surprisingly, money costs something - it’s not cheap, and people actually want to get repaid in a reasonable time frame with a return.  Instead let's villainize  the operating companies for trying to cut the best deal on the leases they take, the midstream companies for trying to generate a return on the billions they spend on infrastructure, the operators for trying to squeeze every last dollar out of the billions they invest in their wells, geology, engineering, etc and on top of that, let's villainize mineral buyers for not paying a seller dollar for dollar today on what their POTENTIAL future cashflows maybe - that sounds like a really productive idea!! Pardon my sarcasm, but sometimes seeing the same old statements makes me want to scream.

In summary, SELLING maybe be the RIGHT THING for some mineral buyers, and it maybe the wrong thing for others. 

 

Permalink Reply by Jeffrey Beunier on June 25, 2018 at 9:11am

oh  full disclosure...I'm one of those guys that buys stuff so I may be a little biased that people have the ability to decide what's right for them

Permalink Reply by David Allen Lilly on June 26, 2018 at 12:45am

So, is my opinion worth more than yours because I am not to profit by my advice but offer it solely based on what my experience has taught mt to be in the very best interests of the landowner ?

A buyer like yourself would never offer biased information that would be to your benefit, would they ?

I offer my advice based on actual experience. I always end with "they are your minerals and you are free to do with them what you will, no hard feelings either way". I truly have no dog in this hunt, I just know and have seen people make decisions due to biased advice given them by people who have motivations that are not in the best interest of the landowner.

Do you tell folks in your presentation that you are giving them 15 cents or so on the dollar for their assets as you are trying to aquire them ?

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