Should you sell your mineral rights? Maybe. As long as you understand the difference between leasing and selling, and you also understand that you are exchanging risk with the buyer, then it may be smart.
Remember that leasing means you own, and will keep, your minerals. You are granting the indefinite right to produce to the lessee, and you get royalties in return. You hope those royalties will be enormous. If the lease ends, you can lease the land again to a different producer.
If you sell your minerals, they are gone forever. (You can bet that sophisticated purchasers will routinely file preservation notices to prevent abandonment under the Dormant Mineral Act.) Large investors are now buying landowner’s mineral rights, with the belief that the future royalties will be huge. So, if you sell, your right to royalties is gone—you are selling your royalties.
You have only one question: is the amount offered enough for me to risk the possible greater returns from the royalties in the future? There are many unknowns. When will my property be drilled: next year, five years from now, or ever? If they do drill, how high can my royalties be? Can the well sustain production for a long time? Will the price of gas and oil hold?
No one really knows the answers to these questions. Even the producers, as sophisticated as they are, do not know.
The purchaser of your mineral rights takes all the risk and must be sure that your property will generate more than the purchase price in royalties over the years. In fact, it must generate well more than that to account for the time-value of money and the risk involved. Even half that amount may be worth shifting the risk to the investor.
Do not assume that those investors know more than you do. A lot of these “smart guys” also bought mortgage backed securities in the early 2000’s.
But…get the best price! Too many landowners are signing without shopping. People who would otherwise clip coupons to save 25 cents on eggs will sign a contract for hundreds of thousands of dollars, without really knowing the true value of their minerals.
Worse yet, landowners who could otherwise lease (i.e., their land is not held by an existing lease) have been selling their mineral rights without first getting a lease. This is throwing money away. After you sell, you cannot lease. The mineral owner will. The mineral owner will get the lease bonus and not you.
Get help if you want to sell your minerals! We represent landowners exclusively. We can, and will, find the highest price available. We can also help untangle legal snares that may arise when you do attempt to sell, such as adverse claims to the mineral rights. We may even discover that you can first lease your land, and then sell your minerals later.
If you have an oil and gas question or need representation in an oil and gas matter, please call us at 740-374-5346. Click here to read more about our Oil & Gas representation.