A different company (Dune) has approached my brother and me about selling our mineral rights in Borden County. We have total 40 acres (20 each). Offer is $5k per acre.
Description: All of Section 64, Block 25, L.N. Ry. Co. Survey, Borden County, Texas, save and except 80.00 acres thereof.
A couple years ago a different landman had called offering way lower. Like $30k total -
We seriously just don’t know what to do/ the pros and cons of selling versus leasing. The taxes, if any… this company actually did offer a split of half but and half lease. This is inherited mineral rights. We both live out of state. Don’t know who to call or how to check up on it.
If you don’t need the money I’d hang onto it. The lease bonus may eventually be more than what is currently being offered. Plus any royalties from production that might come could be even higher than the initial lease bonus. As for taxes you would have to pay income tax on the lease bonus and any royalties. I don’t know if Mississippi has a State income tax but they probably do and you would most likely have to pay State taxes as well. As for Texas taxes the only tax is the yearly Borden County tax from the tax assessor-collector for Borden County. Cost depends on on your % interest in the well as well as production. We have some Borden County mineral interests and the County taxes have not been that high.
Good luck. You’ll have to pay Capitol Gaines taxes on selling your interest I believe. No matter what the tax office always gets their cut of any type of sell/lease/production income.
Whether to sell or hold is a personal decision that depends on the financial needs of the seller and the amount being offered by the buyer. I don’t believe the adage of “never sell your minerals” because I have seen many times in recent years where the price being paid was highly speculative and way more than the minerals ended up being worth.
That being said, one should absolutely never sell your minerals without doing your homework - and possibly working with a professional advisor or lawyer. There are many such professionals listed on this website under “Directories.” I suggest reaching out to one or more of them for their thoughts on your situation and options.
That’s interesting. My brother nor I are in a situation to “need” to sell right now. We were approached a couple of years ago (which is how we found out we inherited it) go literally 1/10th of this offer. It was during COVID and both of us are essential workers and didn’t have time to even think about what to do. So we declined and have not done anything about it.
Now Dune has come in with a juicier offer- (which throws flags in my mind).
Is there a “mineral rights for dummies” crash course? -
The Mineral Help tab at the top of the page is a good place to start. The National Association of Royalty Owners is the main education organization for mineral owners. www.naro-us.org. They have training classes, webinars, conventions, etc.
Buyers know something you do not know, so getting informed is always the best way to start with the decision making process. Do not assume that the buyer has your best interest in mind. They plan to make a profit.
@Mississippigirl I would lease then if I were you. High Peak is the operator out here and they have been drilling some great wells. Make sure you lease directly to them.
Fellow mineral owner here. I get multiple offers a week. These buyers cannot do anything to enhance the value of your minerals, that you cannot. They are offering to cash you out at a discount. Minerals are owned by the state in every other country in the world besides the US and a small part of Canada. There is no cost to holding them unless they are drilled and producing. That is why never sell your minerals is told to future generations.
Mine have been in the family since 1952, passing through 3 generations. There have been times they were producing very little. The use of fracking has changed that, and the money is significant. Technology will continue to find a way.
This website is a wonderful resource for new and old mineral owners, because we are no longer isolated, unaware of the market for our minerals, fair lease bonus and royalty percentage. I suggest you spend time reading old threads. You will become educated.
Severance Tax and Texas Regulatory Fee are both withheld from your Royalty Checks - when doing your Federal Tax Return you will also figure depletion. A CPA can help you understand the record keeping and reporting. Your Borden County Property Taxes will also come off your net amount due to Uncle Sam. Set aside a reserve to pay quarterly taxes and life will be simple from day 1.
Unpaid property taxes can lead to a lean on your property/mineral rights. Very important to pay these taxes on a timely basis.
I am grateful for the income. Just understand the finances and this is a sweet deal.
I’ve approached this question the same way I approach the question of buying non-catastrophic insurance or gambling in a casino, which is:
Nope.
On the average, the casino will win. On the average, the insurance company will profit from every policy you buy (which means on the average you lose). And you can bet that those offering to buy your mineral rights have done homework and know more about your land than you do. They have enough information about your property to be able to determine with certainty that the price they’re offering you is less than the value of minerals they will extract from your land in the future. Again, in the long run, you lose.
Of course, some people can be desperate to make money immediately, and if that’s the case, then it is what it is. If one needs the money so bad “right now” that one is OK with someone else making more from your property than you do, and you’re OK with that, then go for it. But if at all possible, lease.
Also when it comes time to lease, what helped me is just to wait 6-8 weeks before signing anything. At first it was just one company, but in time, other companies contacted me as well. I had them bid against each other, and it went from $750/acre with 3/16 royalty and a 2-year extension option after 3 years, to $1750/acre with 20% royalty and no extension clause.
Keep in mind that the decision of whether to sell or not has a lot of variables to consider.
For example, since these rights are inherited (not quit-claimed to you), you get a step up in the tax basis to the fair market value at the date of death. If the rights have been inherited recently you might not have much to declare in respect to its present taxable value, which could make a sale advantageous to you depending upon what price is being offered, of course.
One way to determine the step-up in basis of inherited mineral rights is at the time of the sale. Once you have a current market sales price, you can use the inflation adjusted price of oil to determine your basis. All of this can be estimated once you have a sales price from a buyer and you come up with the step up in basis figure.
However, determining a fair price for your rights requires financial, investment and tax expertise that many owners do not have. Thus it is very important you contact companies that are in the business of helping an owner navigate the tricky waters of making a sale/lease decision. This could be an oil & gas attorney or companies that have a mineral appraisal capability in its operations.
Also keep in mind that even if you decide to not sell the mineral rights for a lump sum payment, you will most likely have a large tax bill at the time to pay for the bonus payments that you will receive for leasing your rights to an operator. The bonus royalty payments are ordinary income and cannot be spread out over several years, so you will be paying taxes at the highest marginal tax rate for your level of income. These taxes will be both at the Federal and State levels.
Selling oil and gas royalties for a profit can also lead to a capital gains tax; however, there are some interesting structural strategies that may afford you the opportunity to take advantage of deferring any capital gains taxes that arise from the selling of their oil and gas royalties. Section 1031 of the tax code is one such potential if your mineral rights qualify.
The good news is that at the end of the day, since these rights were inherited, any cash received by selling or leasing the rights to others will be a net increase to your personal equity. Not a bad deal at all…
Jim,
I am very interested to know your personal situation. Did you inherit your minerals? Do you own minerals? That is a very curious statement, that inherited minerals come at no cost.
There is always a cost. It just cannot always be measured in dollars and cents.
Your statement seems like it is a justification for selling. Would that benefit you?
Yes, I do own mineral rights in the Marcellus formation that I have leased to Chevron and then bought by EQT in a package deal, between the 2 operators… I signed a lease with 2-5 year terms. The first 5 year lease term is expiring in 2023 and am expecting EQT to complete the well during the year and to exercise their option for the 2nd 5 year term.
Not sure where in my original post you read the mineral rights come at no cost. I have re-read my post and do not see that statement anywhere in it. Of course there is a cost to owning and holding a potential asset such as mineral rights, at the very least you will be paying property taxes in those states where they are taxed as real or personal property, which is a cash outflow.
There are also a ton of potential opportunity costs that come with owning these assets, usually in the form of lost opportunity. The owner can decide to sit on the rights and do nothing, with a plan to pass the rights onto their heirs when they pass. The opportunity costs that might be a part of that decision would be holding onto rights that have value in the present economic climate for oil and/or natural gas but end up having no or little value at the time the heirs inherit those rights. That cost would be the reduction in cash value of the current owners estate, which could be significant.
Given the state of energy management in the US by our elected officials, it would not surprise me at all for the mineral rights of today having little value in the future, given their desire to rid the world of fossil fuels. Although it is my belief it will be several decades in the future before they can realistically achieve their goals, the future value of any mineral rights of today will most likely decline to a seller of rights due to increased risks that would be taken on investors tied to the energy policies at that time. The buyer’s risk will go up and the margin of safety they factor into their purchase decision will be higher, thereby decreasing the net present value of the sale to the seller.
In my opinion, anyone that has inherited mineral rights from a loved one, needs to be a good steward of those rights since they were most likely passed onto you by the grantor for a reason which is tied to their inherent value to the grantee. Maybe to help fund the great grandkids education, for example.
Since I am not in the business of buying or selling mineral rights, I have no interest in the decision that needs to be made by Mississippi Girl, other than to help her understand the potential issues that are in play for her stewardship of her mineral rights. I do have a financial background and owned my own business for 28 years, but it was not tied to the energy business.
Jim: If EQT drills and completes the “well” in the first 5 year term, there will be no exercising of the 2nd 5 year term as the lease will then kick into the production phase and you will begin to receive royalty, not lease bonus payments.
This is where I got the ‘no cost.’ And there should be no adjustments to your ‘personal equity,’ because assets are assets on a balance sheet, whether held in cash or another asset class, if one were to sell them. The change happened when the title was vested in the new owner.
Thank you for your response. Glad to know that you don’t trade minerals!
I agree with the others in this thread. Only sell if you are in financial need, otherwise, keep leasing. I’m not an expert in that Borden Co. area but I’m sure you can get better than that if there is significant drilling activity going on right now.
Any asset is expected to assist in spinning off profits for the company or individual. If they don’t they are not assets but nothing more than a deferred expense.
As long as mineral rights are producing royalties they are creating profits on the income statement as well as the cash flow statement. You do realize that for reporting purposes a set of books include an income and cash flow statement along with the balance sheet ,right?
Thus, the equity increase that I refer to are the royalty earnings being produced and dropping to the bottom line on the income statement after expenses are accounted for . Those earnings are ultimately booked to retained earnings at the end of each year, increasing the personal equity of the owner.
So as long as you own the mineral rights being leased and they are recorded on your books as an asset, your personal equity will be going up each year they produce royalties assuming they are higher than the costs to carry that asset. In other words, they are making a profit.
All profits increase the personal equity of an individual or the shareholders equity of a corporation as long as you hold them. When and/or they are sold to someone else in the future, there will be a capital gain or loss to be booked potentially further increasing the equity of the owner, assuming it is a gain.
So you have a chance to increase your personal equity in 2 ways-
Ordinary income that comes from the income statement from the profitable royalty stream
Capital gain when the asset is sold. That gain comes from the balance sheet when you sell the asset someone else, assuming there is still value to those assets. With mineral rights as long as the well is still producing there is value to be sold.
Both of these cash streams increase the equity of the owner.