Language in a Mineral Offer

Law & Legal
1

Traveler here.

Related to the Mineral Rights Offers Getting Huge thread that Mr. DuBose closed, I was trying to get a knowledgeable person’s explanation on the wording of the offer that generated the Mineral Rights Offers Getting Huge thread.

In that thread, it was mentioned that $14,000 per NMA would be acceptable for my 53 acres in Culberson County. The legal description is:

(43 acres - T1S BLK 59 SEC 40 A-2297 T and P RR/Shelton AE Well: Street Sense 40 Unit No. 1H 10 acres - T1S BLK 59 SEC 39 A-2705 T and P RR Well: Stone Street 46 Unit No. 3H)

The offer is for minerals and surface, which we insisted on, as we don’t want to pay taxes for land that is no longer generating income for us.

I am trying to figure out the language of the offer, which seems to state $19,500 per NMA, and then has the figure of $22,500 following that. Surface price is $700.00 per acre, which I think is a low offer, but they didn’t want the surface rights in the first place, so…. And is 2% “earnest money” a standard when talking about 6-figure amounts?

Can anyone shed some light on what exactly is being offered from the paragraphs below?

Thanks!

Traveler

Purchase Price . XXXXXXX offers to purchase XXXXX Mineral Interest for Nineteen Thousand Five Hundred and 00/100 dollars ($22,500.00) per net mineral acre (the “Purchase Price”). By way of example, one (1) Net Mineral Acre is ownership of oil, gas and other minerals equivalent to 100% in one acre, or 50% in two acres. XXXXXXX also offers to purchase XXXXX Surface Interest for Seven Hundred and 00/100 dollars ($700.00) per acre.

Mineral Ownership . The Mineral Interest is currently estimated to contain 26.34 net mineral acres and the Surface Interest is currently estimated to contain 52.68 acres, which would translate to a total purchase price of Six Hundred Twenty-Nine Thousand Five Hundred Twenty-Six and 00/100 dollars ( $629,526.00 ). If it is determined that the Mineral Interest owned by XXXXX is more or less than 26.34 net mineral acres or 52.68 surface acres, then XXXXXXX shall have the right, but not the obligation, to proceed with the transaction and adjust the total amount paid by an amount equal to $22,500.00 per net mineral acre or $700.00 per surface acre.

Earnest Money . Within 5 business days from XXXXXXX’s receipt of this Agreement and the attached forms of Mineral Deed, wire transfer instructions and W-9 duly executed and/or completed by you, XXXXXXX shall tender to XXXXX the amount of $12,590.52 via wire transfer as an Earnest Money deposit.

2

Be careful, it does not appear that they were very diligent in writing up their offer. Either they are willing to pay up to $22,500/NMA and settled with you for $19,500 but then forgot to change the rest of the numbers, or they are using a pre-filled form and did not properly edit the necessary fields. Either way it looks like the offer was rushed and you may want to take your time since you only get one shot at a solid sale.

The total purchase price of $629,526.00 is based on 26.34 NMA at $22,500/NMA and 52.68 surface acres at $700/acre, just add those two together to get the total.

Earnest money is nice, but 2% seems low to me. $12K on a $600K+ transaction doesn’t seem like a lot proportionally. I would try to get at least 5%.

3

A site called Acuvalue many be of some assistance for determining value. In Oklahoma a rule of thumb is average surface value of land is about $1500 per acre, sorry land about $1,000ish. I would have an attorney review the offer and especially any warranty of title you are providing.

4

Richard makes a good point about the warranty situation.

5

You should consult an attorney about the wording and legal effect of all of the terms of both the sales contract and the deed. There is far too much money here to be winging it on your own. From the limited attached language, I have several comments. First, you are leaving it to the buyer to determine your net mineral acres and net surface acres and pay you accordingly. What if the buyer claims you own only 13 acres of minerals and then demands to proceed with the transaction? You need protective language that if the buyer determines that you own fewer net acres, than you can withdraw from the sale. Second, the Earnest Money language seems to say that you will only be paid the Earnest Money if you send an executed deed. You should never give anyone an executed deed (or oil and gas lease) except in exchange for 100% of the purchase money or bonus. Otherwise the buyer could immediately sell and assign the minerals to a third party and you will be stuck. You should be are using your attorney or perhaps a title company as an intermediary to hold the earnest money and deed until the buyer finishes its title search. Finally, you should have a definite time frame for the buyer to complete its title work. Some buyers will stretch out the time while they look for another party to whom to flip the property.

3 Likes
6

In a recent post, a person transferred a lease without receiving the bonus money. An attorney would have been worth the investment there. Attorneys on the back end are always more expensive because it is easier for use to prevent than to fix.

7

There are red flags all over this purchase offer. Get an attorney ASAP.

Also, if the transaction doesn’t work out you can always use a listing service like US Mineral Exchange or EnergyNet. I’ve used both and have had good results.

8

Appreciate all of the replies and good advice.

We did hire a landman about 4 years ago who did the work all the way back to sovereignty, so we do know what we own. I would hope that there would be no objection to the documentation that he provided, but you never know.

As stated previously, there is too much money at stake to “wing it”. As we don’t live in Texas, does anyone have a good oil/gas attorney they could recommend?

Thanks,

Traveler

9

Looking for an attorney for a mineral owner? I’d start with the directory here. Choices in Texas.