Can someone with real concrete knowledge explain? I don't want to simply speculate because I'll probably be wrong. But I think it's good to know what goes on in the background. From what I've heard, some are flippers, some are landmen working for an operator, some are landmen working for themselves. I understand what those words mean, but how does it all work? Where do the different types of buyers get the money? How does the person you're talking to get paid? What is usually their split? Is it usually a percentage or flat finder’s fee? How much risk are they taking?
The following is my experience, and is what has prompted me to know how it all works. Perhaps sharing will help others.
We get offers to buy frequently. A lot of them are repeat letters. A few of them seem to have a pretty sophisticated business going on...using metered postage or those postage permits for mass mailers. Most don't state an amount per nma, but some do. A lot stress quick money and a high level of risk if you hold on to your minerals/royalties. Seems like a lot are geared to owners who may have recently discovered their mineral rights/royalty interest, making the offer to purchase possibly "new found” money.
I’ve called some of them and they always ask if there is a price per acre in mind at which you would sell. I think answering with a specific number is not in your interest because you might not know the current rates and could low ball yourself. So I think it’s best for them to tell you how much they are offering, and you can either accept or reject. They probably have a better idea than you of what is a fair price. It's also best to have comparable offers. But if you use figures received in the mail as comparables, some of those will be just "fishing" offers. Never be in a rush, even if you're talking about a lot of money. If someone senses desperation/need for money some people will use that against you.
I also think the mineral/royalties rights market is in a state of transition. Infrastructure in much of Reeves is still in its infancy. So the prices to purchase today may not be accurate 6 months from now. (They could be higher as pipelines used to get product to market get put online). For me, I’m waiting to see what happens. But everyone’s situation is different, if you need the money now, then maybe your decision should be different.
Anyways, none of this is meant to disparage those that purchase minerals/royalties. It's a capitalistic system, buyer/seller beware, and everyone should do due diligence. Any thoughts or sharing of your experience is appreciated.
Hi Randall I hope I can answer some of your questions about this. As background, I am a landman and have worked as everything from an independent contractor to executive management at public and private oil and gas companies. That said, these days I stick with consulting and mineral buying. I got into mineral buying after inheriting some minerals in Reeves and it made me interested in seeing if I could pick up some more and build a portfolio big enough for my kids and future generations.
You are asking good questions but there are as many or more answers as there are possible questions so I will take a stab at a few. As you know there are many types of buyers. Many work for companies that have large amounts of capital to deploy. These are both operators and companies that are partnerships of investors who think that minerals are a good long term investment. That is often where you find the larger operations with metered postage, etc. Most of the landmen for them work for a day rate and sometimes a per acre commission on what they buy. The way a landman gets paid can be different for every transaction. You are correct that the letters are similar about risk and when you call they usually want you to name a price first. As you surmise, it is a good way to get someone committed to a lower number but it also allows the comapny to not waste their time and energy if someone has too high of a price in mind. Many of these bigger companies have a full team of engineers and sometimes geologists to evaluate bigger properties and their time is expensive so they don’t like to waste the value if the deal isn’t a real possibility.
Many of the bigger companies also don’t like to take the time to work on small deals. I know a lot of companies that won’t consider looking at anything that would be valued at less than $100,000. That is where your “flippers” often come in. They either have a company that they know is willing to buy at a certain threshold price or they can aggregate enough acreage to get the bigger mineral buyers involved. There is a number of ways that the flippers get paid. Sometimes they just get the lead and let the end buyer close the deal and they take a % of the deal in cash or minerals and sometimes they just have a flat fee arrangement worked out. The amount that they get varies. I market deals for private owners and often treat it like regular real estate and ask for a 3% fee and sometimes I deploy my own capital to buy and then when I need more capital I will sell down some of what I own and just make as much on it as possible. Sometimes as much as 200-300%. Again, you have to keep in mind that in those situations, which are much more rare, I buy sometimes less than 1 net acre at a time and then sell 10-20. The markup that I get to keep is because of the time and effort it takes to put the small pieces together. My goal is to use what little capital I have and make it go as far as possible with the “buy low and sell high” strategy, while building a base of mineral assets that will produce for long term revenue. Because of that I specifically look for the smaller pieces because I know I won’t have competition from the big buyers. As an aside, I always offer a specific number in my letters because I am annoyed at the letters I get with no number on them....
Hopefully that little insight will help and feel free to ask for clarity on any of it. I love the open exchange of information here and think that the mineral buying side has the opportunity to take advantage of some people and want to make sure that people have the opportunity to enter a deal with good knowledge. I often have sellers tell me that they know the mineral are worth more than I am offering. I always respond that I think that’s true or I wouldn’t be willing to buy them. I look for opportunities where my goals and a seller’s goal align. Let me know if that helps at all.
Well, Travis, I don't know if it helped Randall, but it was a very well written response and I enjoyed reading it. And, ditto, on the written mailed offer with no dollar amount to purchase specified. I throw those away immediately. I especially appreciate the written offers that spell out which properties they are interested in and their proffered price per nma. Good discussion, guys. Linton
Thank you Randall and Travis for sharing your experience. I've had some of the same questions over the years too. Does anyone else have knowledge on this issue?