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?
Jonathan H
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.
Jun 7, 2016
Annie Miller
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.
Jul 1, 2016
Shon Lenzo
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.
Jul 1, 2016