Long time lurker but first time poster. I realize the the industry will rebound in a more stable way, but do any of yall regret not selling for those ridiculous prices they were offering last year? I know I had offers on 2-3 of my interests that we would sell in a heartbeat if offered that nowadays, and we are not in need of money, just know a good deal when its offered. Hindsight is 20/20 though. Just looking for feedback from a community like this.
CS, As I sit here I am thinking man im glad I sold half and kept half of my ORRI as someone on this forum at the time said , "A bird in hand, you know the rest, but it will rebound there is no doubt. GOOD LUCK to all and stay safe!!! Timmy D.
Depends where your interests are. I’m very familiar with weld county in Colorado if that’s where you are talking about. Some areas of weld will rebound yes, others will not. Due to poor well outcomes and the new laws. Some, your best bet will be to sell if you can. Other areas, you’ll want to hold onto.
its amazing how many people think selling 1/4 or 1/2 their interest is not a good way to go…if you have had the asset for years, or generations…and the market went from $50 or $100 / acre to $2 or 3 or $4,000 / nma…its prudent to sell 10 25 50% and ride the balance…now prices are depressed, for quite some time…
1 Like
I have interests in Harrison Ct., Texas and am still getting offers. Is this a good time to sell if the price is still good?
Ellismed - Only time will tell if it’s the right decision or not, while nobody has a crystal ball, many believe oil and natural gas prices will go up over the next couple of years. All things equal (no new permits to drill, etc), if you own oil royalties, they are probably worth substantially less than they were worth a few months ago, whereas if you own gas royalties, they are probably worth about the same.
Better to sell when you want to than when you have to. You wouldn’t go on a forum to ask about selling your car? a house? Would you? You and you only can decide if it is or isn’t time to sell and whether the offer is or isn’t an acceptable offer. If you decide to sell, make sure you exchange the deed for a check. “All disappointment is the result of comparison.”
You have to be very careful about some of these offers. 2 years ago, I received a really compelling offer but when I Googled the company, what I discovered is that they were a bunch of scheisters.
We sold 75% of the minerals in a section in Reagan last year with 6 open, new permits. Doesn’t look like those wells are going to get drilled. But you never know what the future holds, so we kept some. 1031’ed the funds into other investment properties with a more reliable income stream (most of the time anyway, who knows with this lockdown). Good deals can still be found, but there are a lot of companies out there looking for the low hanging fruit to flip. Once more owners start facing financial difficulty, it seems reasonable to expect this will happen with more and more predatory buyers.
That depends on price. May we ask what they are offering? Some companies are still offering pretty close to what they were before the price drop, others are low balling. Just all depends. Most companies will still be paying more if it appears the wells will be drilled within a few years , after this virus stuff passes
I tell all my clients to be very circumspect about selling their mineral interests. There are a number of reasons why:
-
The letter you receive is usually a mass mailing that the sender sends out to everyone on the mailing list of mineral interest owners they get from the County appraisal district.
-
Many of the companies who claim to buy mineral interests are scams. What often happens is that they send you a solicitation letter which makes an incredibly high monetary offer for your mineral interests. They ask you to sign a deed, which is either enclosed with the letter or that they send you if you contact them, and request that you send the signed deed back to them. They then file the deed in the deed records. Then, they contact you and say there were certain ambiguous “problems” with your title to your minerals, or the market for mineral interests has changed, or some other nonsense. They then tell you they will pay you, not what they offered in the letter, but a tiny fraction of what they offered.
-
Companies who are legitimate purchasers of mineral interests rarely send out mass mailings to potential purchasers.
-
If a company is trying to buy your mineral interests, it may be because they’ve heard something about your mineral interests that will make them increase in value. For example, maybe the oil company who is producing your minerals is getting ready to deepen or rework its wells or is preparing to drill new wells.
-
You will usually not get what your minerals are really worth if you sell to one of these scam artists and sometimes even if you sell to a legitimate buyer. The complication is that it is extremely difficult to value a mineral interest. The reason is that the value of a mineral interest depends on the stream of income in the form of royalties from a given well or wells. That stream of income, in turn, depends on many factors: what the price of oil and gas is in the future, whether the reservoir is becoming depleted or not, whether the equipment at the well breaks down and cannot be economically repaired, etc.
-
If and when you sell your mineral interests, there must be special language in the deed that is required by Texas law in order to cut off your liability for the well and the operator’s behavior after the date of the sale. I have rarely seen a deed from one of these companies that has the required language in it.
The bottom line: have the company and the offer thoroughly vetted by your attorney.
2 Likes
So a legitimate offer of $20,000 per acre shouldn’t have been considered? Ouch!
2 Likes
Dear Todd: thank you for your reply. Personally, I probably will never sell my mineral rights because, unless you have an appraisal done, you don’t really know what they are worth. But in my post, I did not mean to imply never to sell your mineral interests. I was trying to say be very careful, for all the reasons mentioned in my post. For example, you don’t know if the offer is legitimate until you’ve done your homework. In addition, even if you or your attorney have determined a buyer is legitimate, the devil is in the details. For example, you will want to be sure you have a properly worded sales contract. Many of the sales contracts I have seen require that you deliver a deed before you get your money. You would not give the buyer of your house the deed to your house before you got paid, would you? It is the same with minerals. When I represent someone who is selling their minerals, I make sure that either: 1) my client gets the money before the deed is delivered; or 2) the buyer puts up earnest money, the deed goes to a fiduciary, either your attorney or a title company, and the deed is not delivered to the buyer until the purchase money, in good funds, is deposited with the title company. If the buyer pulls out before closing, the contract provides that the seller is reimbursed their attorney’s fees out of the earnest money.
Another thing to keep in mind: the value of minerals is directly related to the price of oil and gas. That price is pretty depressed right now, given the covid virus, the Russian/Saudi production war and the excess supply that preceded these factors. So right now is probably a really bad time to sell.
3 Likes
There are certainly scam artists in every business, but in my experience a reasonable portion of “mass mailing” letters are sent by honest people and some of the most respected mineral buyers in the business. Sometimes it’s the only way for folks to reach owners and let them know who to call if they want an offer.
Agree most of the letters are legitimate buyers, but there are varying degrees of “scam”. Some put out a come on price that shrinks after they “check title”. Some use deed forms that convey everything you own in the county or adjacent properties. Some have a purchase agreement from that is basically a one sided option by them to buy the property.
Yes, most of them can close deals and pay cash, but there is a lot to look out for. Broad generalizations rarely fit with the facts on the ground.
Considered - maybe. Acted upon just because it seemed like a “high” price, certainly not.
As with most important and complex decisions, the specific facts on YOUR situation matter. Most citizen mineral owners don’t have the skillset nor the data set it takes to make an informed decision regarding a sell/hold decision. I’ve seen plenty of mineral sale transactions take place during this shale boom (most notably in the Delaware Basin) which sold for somewhere around the 20k$/net acre, that calculated to be in the 50% to 150% IRR to the buyer. Certainly not a good economic decision by the seller (in terms of pure economics).
The main point is - tossing around general numbers often gets people in trouble.
A secondary point is - this is a big time cyclical industry, with geo political implications that the smartest among us cannot predict.
I think it worth defining what “legitimate” means here. That word can have broad meaning of course. I’ll make just one point on this. One of the most prevalent “inconsistencies” in this game is the lack of disclosure as to who in fact will be providing the capital for a purchase, and the name/title/entity on the billions of letters that are sent to mineral owners every year. In other words, from the buyers perspective, “who am I actually dealing with here - who is the actual buyer?” If you’d like to flesh this out from the get go, make a buyer produce a sample copy of a deed they’d propose to use (or have your own drafted), and have the buyer provide a letter from their bank stating that the buying entity has xxxxx cash available for a purchase of this sort.
a. yes, cash at closing is the ante in this game, (never ever accept any kind of ‘future’ payment), however
b. as to “most” - I would say that most sending letters are not in fact root capital sources. Most are intermediaries. They may be acting as a principal, but you can bet that most will be re-selling within short order (err, if not the same hour).
Pretty funny. Disappointment is derived from comparison. But guessing you are satisfied with the trades that you make with your grocery store, until you go down the street and find an item you just purchased cheaper.
This is a great example of how those selling minerals don’t always “lose” as some would have you believe. I think there is a general consensus that selling minerals is “not smart” or a “bad move” and you should always hold.
While that’s clearly the case in some instances, there are plenty of times I have seen (especially recently) where a mineral buying group is left holding the bag to an asset that will likely never return their capital. In other words, they will 100% lose money on the purchase.
I know quite a few sellers in Texas, for example, who are counting their lucky stars for selling last year at prices that will likely never be offered in that region again.
Keep in mind that, yes, selling minerals means you give up the future POTENTIAL for new wells, higher prices, etc., but you also give up ALL OF THE RISK associated with owning said minerals: low prices (hello recent crash), wells not get drilled (see above), operators going BK (get ready).
To assume that mineral buyers always win and mineral sellers always lose just isn’t a fair statement. Rather, it’s simply a trade-off. I trade unknown potential (minerals) for known certainty (cash).
Very well said. Most of the “deep pockets” hedge fund, venture capitalists are gone. Lots of them broke because they overpaid.