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Why Sell Mineral Rights

Should A Mineral Rights Owner Consider Selling Mineral Rights?

Many mineral rights owners wonder about the value of mineral rights and if they should consider selling. Especially in areas of the USA that are enjoying significant oil and gas exploration activity. Such as shale play regions... Eagle Ford shale, Haynesville shale, Niobrara shale, Marcellus shale, etc.

Mineral rights in these areas can bring significant cash windfalls. And when oil plays or gas plays are hot, a lot of money is thrown at them and much of it is highly speculative. Meaning that the buyer of those mineral rights might be buying something that will never produce any income. Or not as much oil production or gas production as what he paid for the mineral rights. It's a gambler's game. Some purchasers of mineral rights have luck for some sales but some do not.

So, what's a mineral owner to do?

Can all go well and a mineral owner end up making more money from "holding on" instead of selling? You bet, not a doubt. But, for those who are more in tune with a sure thing, or a partial sure thing (by selling part and holding on to the rest), a few key issues are at work here.

  1. The risk of NOT taking a large cash payment for a sale of mineral rights that might be worth far less (or even worthless), as time goes on. The mineral owner's general aversion to risk... how much of a gambler he is.
  2. The financial needs of the mineral rights owner.
  3. The "time value of money"... cash in hand today is worth far more than money that might take decades to receive.

Electing To Reject A Cash Offer For A Sale Of Mineral Rights

Especially in the shale plays, a sale of mineral rights can bring a lot of money. Depending on the number of mineral acres owned, it can even set someone up with enough money for the rest of their life. And, even though some say "Never sell land, never sell mineral rights, hold on for dear life," certainly, there is real risk in not taking advantage of such an opportunity as exists in the shale plays at this time.

A key reason is that the oil and gas business, oil and gas exploration, is extremely fickle. It's risky. A gambler's game. Many things can go "wrong" in any given area to devalue mineral rights or even to make them essentially worthless but, perhaps as important, there are risks involved in the bigger picture, global economic and political risks, that are very real, indeed. And, again, a key point here, is that at this time, in shale plays, specifically, big money is available to those who want to sell. So, it's not as simple as "Hold on and never sell."

Financial Needs/Desires Of The Mineral Owner

Everyone has their own unique financial situation. Some might need a big cash infusion for any number of reasons. Others just want to take a large cash payment to enjoy the money while they can. Perhaps they are up in age. Or just want a big cash infusion for some type of project. So, if one is motivated, wanting or needing cash, he is more apt to choose to sell.

Oil And Gas Exploration Risks

Know When To Hold 'Em, When To Fold 'Em

How much of a risk taker are you? In my 32 years in the oil and gas business, I have seen many people reject an offer. The memorable ones are where it was a large sum of money, hundreds of thousands of dollars or even millions. And a few months later, something happened that made those mineral rights, more or less, worthless.

In the Haynesville shale, I have a friend who was cocky and adamant about how foolish it is to sell mineral rights. He has enough acres such that he could have gotten $4 million. Yes, FOUR MILLION DOLLARS. Then, a well was drilled nearby and the production of natural gas was much lower than expected, far too low for the oil company to make a profit. A very poor well. Now, my friend's mineral rights (and those under neighboring lands nearby) are worth close to zero. In essence, he blew $4 million! Who's cocky now?

I know another family that turned down $12 million, holding out for $30 million. You know what they got? Zero. That's right -- they blew $12 million. Again, those mineral rights are worth almost nothing now due to development drilling in their area that did not pan out.

Value Of Mineral Rights Offer

Here are some points to ponder about selling mineral rights.
  1. Cash money is a sure thing. The oil and gas business is very fickle. A bird in the hand certainly applies. By selling, you sell your risk to the purchaser. Nothing is certain in oil and gas but thing is certain -- cash is real.
  2. If you are no "spring chicken," taking a cash windfall will allow you to monetize and enjoy a nice payday while you are alive. You can't take it with you!
  3. We all have different needs and dreams. Perhaps you'd like to pay off your debts. Enjoy a great vacation. Help a relative. Provide for a child's education... there are many things that cost a lot of money which selling mineral rights can provide. And, without having to sell your home or your land!
  4. Maybe you missed out on a big lease bonus in a shale play that began paying big lease bonuses to fortunate mineral rights owners. You can now sell part or all of your mineral rights to finally get your part!
  5. A mineral rights sale is considered capital gains, tax-wise, and the federal tax rate is only 15%. Conversely, if you lease land, the lease bonus is taxed as regular income and if it moves you up in the tax bracket, up to 36%.
  6. Oil and gas prices are up and down. In 2008, the biggest crash in the history of the oil & gas business occurred. And prices are also subject to politics. Predicting oil and gas prices is almost impossible. One thing is for sure, if natural gas price does not rise significantly soon, natural gas drilling will slow down.
  7. Alternative energy is going to grow and who knows what this will do to the oil and gas industry. As for natural gas, we need to promote it! (natural gas info)
  8. Your particular property could turn out "bad" geologically. There may be a fault underlying it or the rock formation that contains oil or gas might change for the worse, meaning that your property is in a bad spot. It happens in every oil or gas play -- there are "sweet spots" and "bad spots." Taking cash money means the buyer assumes that very real risk!
  9. Something can go wrong in the area of your mineral rights, such as oil wells or gas wells that first came in good, went bad. It happens all the time.
  10. The global economy is shaky, at best. Some people are very worried, indeed, about what could happen. A major terrorist attack, an economic meltdown, a major natural disaster... there are many things that could happen that could shake up the world as we know it and put a damper on mineral rights sales. Who knows, even peak oil could make things chaotic. Of course, hopefully, shale play production will mitigate peak oil. Prices should, theoretically rise, but, the point is, chaos could ensue from a major global shakeup, making sales of mineral rights iffy.
  11. Politics are certainly a big risk. In fact, the Obama Administration has proposed changes to the tax laws on the oil and gas industry that some say are so bad, that the oil and gas industry, as we know it, will not exist if the laws pass. For instance, if they take away the deduction for expenses (intangible drilling costs), that certainly would be a major blow. And if it happens, money being paid to mineral owners could decrease significantly.
  12. Another potential (negative) game changer is the current assault on hydraulic fracturing (frac), a completion technique that is mandatory for modern unconventional oil and gas exploration. Some people are saying that it pollutes fresh water aquifers. In my opinion, the attack on the frac is a hatchet job and ill-founded. I think that the frac process is safe. Although, I do welcome the concern. But if they make it to where the frac can't be done, this game is over.
  13. The Gulf Of Mexico oil spill is a horrific event. It angers me that it occurred. Seems to me that they could do more than they are doing. But what has happened has happened and we don't know what ramifications will occur against the oil & gas industry. Who knows. I only hope it's not as disastrous for the gulf as some are saying it could be.
  14. The capital gains tax, which a sale of mineral rights can be subject to, is much more favorable that tax on regular income, but the talk is that it will rise very soon. So, sales that occur this year could "save" money from paying less tax.

As stated above, selling mineral rights or producing royalties can make sense. And, mineral rights also include royalty rights -- whether you are receiving a regular oil check or gas check or you own a non-participating royalty, you own oil royalty rights or gas royalty rights, which are part of your mineral rights position.

Even if a property is known to be productive for oil and gas, does this mean you should never sell? Answer it by looking at the oil industry, itself. Do companies ever sell off their producing leaseholds or do they always hold them? They often sell. If a deal can be made such that the cash received allows you to do something with the lump-sum cash that you want to do, then, you might elect to sell. It's very common. And individuals have been selling mineral rights since the oil business began over 100 years ago.

Partial Sale Of Mineral Rights, Gamble On Remainder

So, a sale of mineral right is something that many mineral owners should consider, especially if their property rights are in one of the shale plays.

The money being paid for mineral rights in shale plays is incredibly significant right now. Never before have mineral owners had the opportunity to enjoy life-changing paydays for selling. So, if you could use a big payday or if  you do not want to risk not getting some sure-thing money, selling part of your mineral rights is a viable alternative. In essence, sell 3/4 or 1/2, for instance, and gamble on the rest. It's like the best of both worlds. You get the guaranteed payday -- cash -- and take a gamble that some day, a well is drilled on your property (or on a drilling unit that contains your property) and you can enjoy the oil royalties or gas royalties at that time.

As for when drilling could occur that benefits a royalty owner, who knows. These shale plays are so big, it might be decades before any given tract of land is fully developed. And the other thing to realize is that mineral rights value -- the amount you can get from a sale of mineral rights -- is based on several wells being drilled in a section of land. A section being 640 acres.

The reality is that the majority of drilling units in any shale play will not see full-scale drilling development of their unit for a very long time. It's simple arithmetic. With each shale play containing millions of acres, it's going to take a very long time... decades... to drill these ares up with infill drilling. So, a sale of mineral rights can definitely put more money in your hand for the next, say, 20 years, than not selling.

Eagle Ford Shale / Haynesville Shale / Other Shale Plays

If you own mineral rights or producing or non-producing royalty rights in an oil and gas producing region (especially one such as the Eagle Ford shale region, Haynesville shale region or Niobrara shale region), your mineral rights and royalties do have value. And sometimes the mineral rights valuation is significant. That's your dilemma, you may be asking "Should I sell my mineral rights?"

Sell Eagle Ford Shale Mineral Rights

Are your mineral rights in the new Eagle Ford shale play? The Eagle Ford shale is a productive oil and gas-bearing rock formation found in South Texas and is experiencing quite a bit of drilling for both oil and natural gas. It began as a natural gas play but now, it has been discovered that oil and/or condensate is produced in certain updip areas. Mineral rights owners are now cashing in with significant payments from purchasers of mineral rights.

If your mineral rights are located in the following Texas counties, it might fall within the outline of the Eagle Ford shale:
  • Dewitt county
  • Gonzales county
  • Wilson county
  • Lavaca county
  • Karnes county
  • Live Oak county
  • Atascosa county
  • Dimmit county
  • McMullen county
  • Frio county
  • La Salle county
  • Zavalla county
  • Webb county
  • Bee county
  • Webb county

Sell Haynesville Shale Mineral Rights

If your land or property is in the Haynesville shale play, you can also sell mineral rights for a nice payday. (See Haynesville shale map.) The Haynesville shale region lies in Northwest Louisiana and parts of East Texas... part of Caddo Parish, Bossier Parish, DeSoto Parish, Red River Parish, Bienville Parish, Sabine Parish and Natchitoches Parish.

Other Areas

Other areas that can bring a good payday for sale of mineral rights:

  • Niobrara shale (Colorado, Wyoming, Nebraska, Kansas)
  • Marcellus shale (Pennsylvania)
  • Bakken shale (Montana, North Dakota)
Also, note that if you are thinking of selling Colorado mineral rights or selling Wyoming mineral rights, activity is strong right now, so, don't delay. The Niobrara shale is a new play and we don't know if it's going to work out, but, for now, mineral rights sales in Colorado and Wyoming are picking up.

FREE email report: Why Sell Mineral Rights

It's a very important topic for mineral owners and there is a lot to cover! If you'd like to receive a series of free email reports, "Why Sell Mineral Rights," please fill out our contact form and we'll begin sending them right to your email box. We'll send this series of emails one at a time, providing much more in-depth information on this complex subject. Oil and gas mineral rights and royalty rights are anything but simple! And regarding the reports, you can opt out at any time. Furthermore, as for privacy, we keep your email address private; it is only used to send your free reports. [ Click here to complete the form ]

Speak To A Mineral Rights Buyer

If you're tired of reading and right now, you want to speak with someone knowledgeable and easy to talk to about how to sell mineral rights or royalty rights, producing oil rights, gas rights or even non-producing minerals, contact us here -- mineral rights buyer.

Bill will help you with selling mineral rights in various areas, especially if your mineral rights are in the Eagle Ford shale play of South Texas or the Haynesville shale play and Bossier shale play of East Texas and Northwest Louisiana or the Niobrara shale play in Colorado, Wyoming, Nebraska and Kansas. ]

You have learned that there is a lot to cover regarding mineral rights, royalty rights, producing royalties, oil royalties, gas right royalties, etc. For another take on it, here is one more link: how to sell mineral rights.

Good luck, whatever you decide!