Mineral rights can be a valuable asset, whether you’re considering acquiring them or thinking about selling. This comprehensive guide offers insights into both sides of the coin, providing you with knowledge you need for informed decisions.
What are your minerals worth?
In any deal, buyers and sellers usually don’t agree on the exact price. The trick is finding a fair middle ground that both sides can accept. Imagine selling a house without talking about prices – it wouldn’t work. Sellers want the most money, and buyers want the best deal. It’s all about finding a price that works for both.
MineraliQ+ provides two value estimations to give you guidelines on what your assets are worth: revenue multiple and blow-down analysis.
The first step in even considering selling your minerals is to understand how much your assets are worth so that you can make the most informed decision about whether to sell or hold.
What is happening around your royalties?
Imagine selling your acreage, only to find out that five new permits have been issued nearby and the value of the minerals has shot up substantially.
Many times, when future wells are pending, you may receive offers from buyers hoping to catch you unaware of the future potential value.
Sellers need to be just as informed as buyers to get a fair deal. MineraliQ tracks permits, drilling activity and well completions through our Enverus and EnergyLink data. Going even further, Enverus is the only company with GPS units on each rig, providing the most up to date information for owners.
What type of interests do you hold?
Be sure to review your records to identify what types of mineral rights you have. If you have leased property to an operator, you own royalty interests. If not, you likely own nonparticipating or overriding royalty interests.
Sell in part or whole?
Royalty interest owners of all types can sell all or a portion of their interests. Royalty interest owners have additional flexibility to sell portions of a section or even the rights to a single wellbore on a well. You can continue to sell incrementally over time. And if you have leased specific wellbores you can continue to sell these mineral rights as additional wellbores are added to wells on your property.
Each situation is unique and figuring out how much to sell will depend on your minerals future production estimates, value and your own financial needs.
There are many ways to market and sell your mineral rights; some of the most common methods include online auctions and listing sites. Other methods include sealed bids and selling directly to a buyer. Whatever way you go, ensure you have a clear idea of what your minerals are currently worth, the activity happening around them and their past production. MineraliQ has Excel downloads that enable you to analyze your royalty data and provide information to interested parties.
Just like selling a home or purchasing a vehicle, don’t rush into this. This is the most common pitfall that mineral owners run into. The first offer you receive on your minerals is rarely the best or last – remember, it’s a negotiation, not a flat price. Don’t take the first offer or be pressured into deciding with a limited time offer.
Special purchasing terms
While it’s a business transaction, be cautious of buyers who impose special purchasing terms, such as an option to buy after 60 days. These terms may indicate that the buyer intends to flip your mineral rights for more cash. Take the time to consider all aspects of the deal to ensure it aligns with your goals.
Selling mineral rights is a significant decision that demands careful consideration and strategic planning. With the right knowledge and approach, you can navigate the process confidently and maximize the value of your mineral assets.
Buying mineral rights
In the realm of mineral rights, the opportunity to acquire these valuable assets can be both promising and complex. Whether you are a seasoned investor or new to the world of mineral rights, the journey to buying minerals requires a strategic approach.
Recognizing the risks
Understanding the inherent risks is paramount when entering the mineral rights market. Arm yourself with data on oil and gas activity in the area you are looking to purchase in and ensure you are doing your due diligence to understand what you are buying.
A basic understanding of a well’s life cycle can help you avoid investment pitfalls, such as buying early on a shale well whose production will decline sharply in the first year or paying a 3X multiple for an older well that might be plugged in one year.
Defining your objectives
Clearly define your objectives. Are you interested in non-producing mineral interests or the stability of royalty interests, overriding, or nonparticipating royalty interests? Your goals will shape your buying strategy and narrow your focus.
Each region offers unique potential. Dive deep into a specific area to gain insights into its geology and market trends. Promising regions include the Delaware Basin, the Eagle Ford, the Bakken and the Haynesville Shale.
Enverus offers a great number of free blogs about industry trends, M&A activities and the energy transition among other topics. It is great free resource for any interested in energy news.
Estimating asset value
Valuing mineral rights is a multifaceted process. While a common approach is to estimate asset value by multiplying how much the owner received over the last year by a certain multiple (for example 3X or 4X annual income). Buyers who want to be competitive should also consider location and asset quality in their offer.
Check the facts
Nothing is more disappointing than investing time and research into purchasing an asset, only to find out the owner does not have the right to sell to you. Verify that the owner has the rights to sell to you using courthouse records and ensure that the lease does not contain “held by production” clauses that would allow the operator to produce very little just to hold the lease.
If you are acquiring mineral interests or royalty interests, be aware that you are assuming the burden of maintaining and negotiating leases with oil and gas operators. In contrast, overriding royalty interest, nonparticipating royalty interests and wellbore interests do not, but these revenue streams end when leases expire.
By approaching the world of mineral rights with a well-thought-out strategy, you can make informed decisions, mitigate risks and maximize the value of your assets, whether you’re buying or selling. Success in this dynamic market hinges on knowledge and strategy, making it an exciting yet challenging venture.