MRP 70: 5 Tips if You Are Thinking About Selling Mineral Rights

I have gotten a lot of feedback from listeners that one of the biggest concerns right now relates to selling mineral rights or royalties.  Everyone’s situation is different and life events such as job loss or medical bills may necessitate the sale of mineral rights in order to meet immediate financial needs.  We are currently in a down market and the temptation to sell is strong given all the negative press about the future of the oil & gas industry in the US.  If you don’t need to sell right now and can avoid the temptation to liquidate at the bottom of the market, your patience may be rewarded in the long run.

That said, if you do find yourself in the situation where you must sell some or all of your minerals, here are 5 tips to help you get the most for your interest. If you are thinking about selling your mineral rights or royalties, get our free cheat sheet with all the details behind each step to help you sell your property for top dollar like a pro.

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1. Know What You Own

One of the best pieces of advice that I have heard is from attorney & NARO Colorado Board Member, Ben Kinney, who said “know what you own”.  In addition to having a list of your minerals and royalties along with the legal descriptions, you should have copies of all key documents related to any mineral tracts that you own.  This may include deeds, oil & gas leases, division orders, recent check stubs, as well as any estate paperwork transferring ownership to you.

2. Know What is Happening Nearby

It is important to know what is going on near your property.  This includes: knowing what operators are active, the location of recently permitted wells, and the location of wells that have been recently drilled and/or completed.  You can research pooling or spacing applications with your state oil and gas commission to get an indication where operators might be planning to drill next.

Key resources for performing this research include your state oil and gas commission website and other free sites like WellDatabase.com and MineralAnswers.com.

3. Know What Your Property is Worth

You should have an idea of what your property is worth before obtaining offers.   Equip yourself with the same type of information that buyers have about the value of your interests so that you can make an informed decision about the amount that you would be willing to accept. 

One way to get this information is to hire a consultant to perform a valuation for you.  This small investment can mean the difference between getting top dollar and leaving thousands on the table.  

4. Understand Your Options

Decide what you are going to sell & how you go about selling it.  For example, it is possible to sell a fraction of your interest while keeping the rest to enjoy for the future.  Other creative ways to raise money include: getting a loan against existing royalties, selling a Non-Participating Royalty Interest, selling a wellbore only interest in existing wells while keeping the rest of your minerals.

There are various ways to go about getting offers, including: using an online auction site like EnergyNet.com, to hiring a broker to market your property for a fee, to doing it yourself.    Using an auction site or a broker may cost money in exchange for the help.  The goal is to obtain offers from as many qualified buyers as possible to get the highest value. 

5. Have a Plan

It is important to get financial, legal, and tax advice relevant to your specific situation.  These professionals can help determine how selling your minerals might fit into your overall financial plans.  Your attorney can help update your estate plans to reflect the change in ownership and can review any paperwork before you sign.

In addition to consulting with these key advisors, it is important to have a road map or a plan that outlines everything along the way. If you are thinking about selling your minerals or royalties, our free cheat sheet provides the road map of the things to do in order to sell your property for top dollar like a pro.

Pros & Cons of Selling Your Mineral Rights

• Pro – If Joe Biden institutes a ban on hydraulic fracturing (‘fracking’) on federal lands, it will limit new production from this important piece of the production pie. The possible “con” with selling in 2020 if this happens is that it could re-direct some investment to fee (private) mineral acreage thus accelerating development of this acreage assuming it is economic for companies to do so. In other words, it might help boost the value of minerals in certain areas.
• Pro – Capital gains tax rate. Selling your minerals now will subject you to capital gains taxes at current rates which are likely at a low point (meaning you pay less now). If tax rates go up, then selling in the future would mean that your tax liability could be higher than it is today.
• Con – Commodity prices could go up in the future once supply & demand balance out. Many believe that commodity prices will recover over the next few years and activity will pick back up in the core areas of the major shale basins.

Resources Mentioned in this Episode

• Our free cheat sheet that tells you what you need to know in order to sell your property for top dollar like a pro.
• MRP 5: What to Know About Selling Minerals (and 5 Red Flags to Watch For). In this episode, we talk about the typical process that buyers follow when you sell your minerals and 5 important red flags to look for.
• MineralAnswers.com
• WellDatabase.com

Summary

Selling your mineral rights is a big decision. Remember that you are in the driver’s seat and don’t let buyers pressure you with arbitrary time deadlines. (For other red flags to look out for when selling, check out Episode 5 of The Mineral Rights Podcast).

While conventional wisdom says to hold on to your minerals, if you do sell it is important to educate yourself and take the steps to ensure that you make the most of the situation. If you are thinking about selling your minerals or royalties, and want to make sure that you are taking the right steps, get our free cheat sheet with all the details to help you sell your property for top dollar like a pro.

As always, this should not be construed as investment, tax, or legal advice.  Please consult your accountant, financial advisor, or attorney for advice specific to your situation. 

Want Some Help?

• My company, Silverheels Investments LLC, provides mineral valuation services and can help you sell mineral rights to qualified buyers.
• I’m happy to provide my listeners with a free 15 minute phone consultation to help you understand your options and potential costs whether you work with us or decide to go another route.
• Matt’s Direct Line: (720) 449-2328
• Email Matt: info@silverheelsinvestments.com

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