What is the best way to go about selling a portfolio of inherited fractionalized mineral interests; some producing and others not, all over the state of Texas. Following up on the letters has been frustrating to say the least as they always offer more in the letter than they are willing to pay ultimately.
Thanks for the guidance.
@Shotzee0649 An evaluation from a reservoir engineer that is experienced in your area is a good start. They can give you an estimated NPV for your producing wells and undeveloped acreage using the current price strip & forecasts. A good reservoir eng. or landmen should be plugged into legitimate buyers for your areas. Important to get your valuation from actual data & not from what the guy next door was offered.
Hope this helps some!
Welcome to the forum! You have a few options, but first step is knowing exactly what you have. I’ve seen many fractionalized portfolios where the new owners have had very little handed down to them and are relying on operator payments and buyer offers to know what they have. This may not be the case here, but step one is to know exactly what you own, where it is (legal description), and how many net mineral acres you personally own. It’s been rare where the offer has had the ownership correct (even if they seem so certain in the offer, it’s usually several stacked assumptions; part of why the offer changes later on), so those aren’t the best to rely on for details.
Second, the ownership title documents need to be firmly established that you’re the owner, with the counties and the operators. It’s hard to sell minerals when there is a title issue like probate or some curative issue (not my strong suit; someone like @Warmheartsland can chime in on this). You’ll also want to make sure all money is retrieved from suspense (if an operator was needing a document before distributing funds) before selling, or else you would forfeit that money to the buyer.
Third, active basins like the Permian and producing properties will be easiest to divest. Investors love showing Permian acreage or quick returns from royalties. You’ll want to check for any permits to drill on your acreage or nearby rigs as that will drive up the value without it being obvious to you why (and many buyers take advantage of that upper hand). Any area you have unsolicited offers likely means you have enough to warrant an evaluation to have at least as much info as the buyer, so this is where I’d recommend having an engineer take a look at the wells and reservoirs attached to those offers, as mentioned above.
The non-producing, non-Permian acreage gets more parcel-specific in terms of what to do. If you own 0.5 net acres of non-productive land in Jim Wells county by itself, that’s much different than divesting 5 net acres in Rusk county. It’s very reservoir/area specific. EnergyNet.com or another auction house is an option for random tiny parcels, but it really depends on the value of the portfolio and how complicated title will be to sell.
Word of advice: Negotiate. Always. Buyers bluff all the time, but everything is negotiable in oil and gas, and everyone is trying to get a good deal. There is no “one set price” an asset should sell for. Comps are hard to come by and rarely are public info anyway, and buyers use this to their advantage. Analytical methods (engineering) can get a good estimate of value, but many fractionalized portfolios aren’t large enough to make that time and effort worth the investment (though if there are more than $1000/year of royalties it usually is, and can also clarify ownership/suspense funds due to the estate if not).
Another option is to NOT sell and to instead join forces with family members to create a trust or LLC, then let the entity decide how to distribute the funds (maybe a family reunion or a scholarship), or donate the asset to a non-profit. This ends the cycle of divide, divide, divide, but needs to be handled by an attorney (also not my specialty).
Feel free to ask us any questions as you go along!
Hi,
I agree with everything @Lee_Ann and @tracy_lenz say above. The buyers will attempt to knock down the price for any issue they can find along the way through their due diligence - ie. title issues, lower lease royalty rates than they originally accounted for, etc. To have a stronger position to negotiate, it is important to understand what you own and any issues that may be attributable to the interest.
The buyer may offer less for items that have title issues, even though they are relatively easy to correct. However, by purchasing interest with potential issues then the buyer is taking on additional risk. They probably sent out an initial letter to get ahead of the game, and then will go back and adjust as needed based on additional research. Working on your own due diligence ahead of time can help you get familiar with the process (and trust me, it can be a process!) Doing this ahead of time can be a pain, but can also ultimately save you a lot of headache in the long run.
Have a great day!
Thank you, there are several properties in the Permian basin (that would be where the value is) but actually minerals in over 20 different counties. There is a clear chain of Title with legal descriptions on all the properties.
The producing properties were appraised by a petroleum engineer for probate but the valuation was done primarily based on real offers. It was expensive and did not yield much realistic information.
What I am understanding is that EnergyNet.com is your best auction site suggestion for a portfolio such as described above.
Thank you for your help and advice.
Well that’s frustrating. I’m sorry to hear that was your experience. The engineer should have only used the offers as a input to the evaluation, not the bread and butter of it. A proper appraisal of 20 different counties of information would likely take some time, but shouldn’t even need to see the offers other than to corroborate ownership in areas where there are no producing wells or sparse county records.
The whole point of having an engineer assign value rather than a lawyer/landman/accountant is to use well/reservoir performance and science-based forecasts to determine future cash flow of the asset, then relate that future cash flow back to a market value with risk and discount rates. It’s this analysis that is the foundation of the offers, which is why offers are not necessary to establish value. These should then be reconciled with offers and other comps and valuation methods, but most of the time the analytical cash flow method is the best for oil and gas properties.
Yes mam, that’s what I thought was going to happen. Since everyone just wanted to get everything probated, there was no push back.
Income was over 1K per month in '18 but has fallen off to less than of ⅓ of that currently. Offers continue to come in for the Permian Basin properties, daily, however would like to divest all 20+ at once.
I will check into the EnergyNet website.
Thank you for your time, expertise and advice.
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