In a nutshell, the following represent what’s vital to know about the sale of mineral rights:
- The old maxim that mineral rights should never be sold may need updating.
- Changing industry dynamics, the influx of investment monies into funds that acquire mineral rights, low borrowing costs, high stock market valuations and other factors have all come together to drive up demand for minerals – and the prices offered for mineral rights.
- Unsolicited purchase offers are occurring in greater numbers and for greater (sometimes much greater) amounts than in the past.
- Sometimes it makes good sense to sell, and depending on the situation, the sale of mineral rights can represent a prudent – and even compelling – opportunity.
In this blog, we’re going to briefly touch on these factors when it comes to selling mineral rights because, especially in the current environment, there can be many worthwhile reasons to do so.
Conventional Wisdom Says “Never Sell”
When it comes to mineral rights, the standard admonition has long been consistent and emphatic: simply avoid selling them. But as we just alluded to, there may be good personal and financial reasons to sell, whether it’s to pursue other opportunities because of a non-producing property, to eliminate the administrative hassle of keeping up with the paperwork (particularly for rights in numerous and geographically diverse areas in different tax jurisdictions), to make estate planning easier, to simplify division of assets in a divorce and many more.
What About Offers
Mineral rights are complex assets, so if a purchase offer is made, it’s important to seek out experts in the field for advice. These experts can help with commissioning a professional appraisal of the assets (including the analysis of leasing activity in the area, new wells being drilled, success rates, potential royalties and lease bonuses) as well as examination of the precise terms of an offer in detail (to compare it with similar sales to help gauge its competitiveness).
Why the Upsurge in Offers and Pricing?
Unsolicited offers, as we touched on in the beginning of this post, are happening in greater numbers and for increased amounts as compared to the past. There are a host of reasons for this upsurge, running the gamut from increased productivity (the decline in oil prices that started in mid-2014 has forced producers to do more with less and the companies that have survived are getting more production for their drilling dollars) and horizontal drilling (most of the purchasing enthusiasm is focused on areas of conventional production – i.e. regular vertical wells – where the assumption is that horizontal drilling for shale deposits will eventually occur) to lowered risks when acquiring minerals, increased optimism about future oil and gas prices and more money looking for places to invest.
For more information about this complex matter (or if the time has come to sell oil) contact Ten Cow Holdings LLC at (210) 960-1564.
