Selling and buying mineral rights isn’t that new of a concept, normally being handed down through generations – in fact, families have been receiving royalties from oil and gas entities for over 100 years. Until recently, the sale of oil royalties primarily involved institutions, as these transactions have traditionally been tied to large endowment funds and “ultra-high net families.”
In 2021, mineral rights are sold to individuals who want to obtain authority in extracting minerals, or, conversely, these folks can sell their rights – as well as all oil and gas royalties – to companies more than willing to translate the reserves (whether they’re producing or not) into currency. In this blog, we’re going to take a look at the five top tips when it comes to buying and selling these mineral rights, given that this type of investment may be new to some…and perhaps a little thorny for others.
Ten Cow Holdings Pro Tip: The key to getting maximum value when selling mineral rights is creating competition among thousands of mineral buyers; when buyers compete for mineral rights, this drives up the price, thus ensuring the sale gets max value.
- Don’t Sell Mineral Rights Alone
The worst mistake someone could make in this area is selling rights on his or her own. Why? Because it’s taking a big risk. Essentially, the seller is betting that he or she can find the best price while knowing how to navigate the closing process without being taken advantage of…two things far from easy to do.
- Don’t Accept the First Offer Received
This is a popular tip in the home real estate market, too; indeed, many mineral owners incorrectly believe that if they don’t accept this offer they will lose out, but this is a recipe for disaster.
- Avoid Selling to a Flipper
Flippers will put a seller under contract at a below-market price, and will then turn around and sell to someone else at a higher price (similar to the way it works in realty). Perhaps what’s worse, mineral owners typically have no idea it’s happening.
- Develop a Plan When Buying Mineral Rights
For some people, the acquisition plan and preferred location to buy minerals will revolve around whatever they can find for less than “x” number of months ROI; for others, it’s about a specific type of interest in a specific area. It’s usually wise to diversify a mineral portfolio.
- Perform Due Diligence with Regard to Buying
Once mineral buyers find listings that interest them, they should do their research including looking up the property on the state’s oil and gas regulatory commission’s website (and GIS viewer), viewing the production (if any) and offset production, overlaying maps of the mineral location and more.
To learn more about this topic, including ways to sell oil, contact Ten Cow Holdings LLC at (210) 960-1564.
