A young adult NARO member contacted me about how to get started in the mineral rights world. They have taken some NARO classes and watched their family handle minerals and are interested in starting their own portfolio. Thought I would throw the topic out to the experts on the forum as to what advice they would give to a new investor just starting out. Might be a great talk for a convention this year!
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Dont do it, odds are high theyre going to over pay for minerals and lose money. If one decided to do it, buy when oil and gas prices are low and follow a good operator to buy minerals under
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Laugh. It’s a horrible business. Full of horrible people. Too much money chasing too few sellers. Do something more honorable like run drugs or hookers.
The math on it currently is, to put it bluntly, all completely fudged up. At least in major basins. Not commensurate with the risk. You can find deals but you had better be willing to work in the absolute weeds of the tax rolls and get told no 99.9% of the time. If you live in an oil town, and know mineral owners, and you have some aw shucks to you, then go out and talk to them about converting their risky future cash flows into a solid known lump sum. But this isn’t a money tree, it’s a nausea inducing risky business.
I mostly know Permian and Bakken. Would not recommend. Try Utica or PRB or old conventional PDP.
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@M_Barnes, yes, interesting topic. I would hope the young adult NARO member is also a wealthy, young adult NARO member. It isn’t impossible but there are many downsides to consider.
Most mineral dealers and auction houses require buyers to be accredited investors which means you are at least a millionaire not counting your residence or have a high income (over $200-$300 thousand).
Payback can be literally forever. Some of the minerals purchased by older family members 90-100 years ago, are only now getting drilled. We are grateful to them, but it is worth noting that they passed away a half century before anything happened with their investment.
Also, as noted by @Bob77, purchase prices are often at a premium which means again that it will be several to many years before even a producing investment breaks even.
Not recommending either way, but there are mineral trusts that sell shares on the stock market, and these give monthly payouts that are Schedule E royalty income complete with deductions and depletion. Note that these are “net profits” shares so unlike real mineral ownership expenses are deducted before the monthly payout, and the payout may disappear for many months, and if oil prices go down, the share values often drop to literally pennies.
Just investing in oil company, midstream company or refinery stocks is also an option to be part of the oil business. These stocks often pay a dividend and can appreciate during good times. They can also fall in price and stop paying during bad times.
I would guess that most young people don’t have the financial cushion to strand a lot of money in mineral rights, but some people and companies manage to do well. I suspect the real experts are hesitant to share how to do really well.
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If he/she really wants to get into the mineral game, they need to become educated. Then the easiest way is to buy interests from MCEE or energynet.
- don’t spend money that would be devastating to lose.
- Many of us who have rent houses didn’t know anything about owning a rent house until we bought one.
- Seek some advisors or mentors that can let the buyer know about the risks.
- be aware that some of these investments may never pay out or may take years.
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What a topic for an interesting discussion.
- Find great mentors and put in your time learning the basics. I had Hillary Mahin (landman), Al McCall (1st Nat Bank Tulsa), Robert Kershaw (American Bank Muskogee), and Harry Tucei (Home Stake Royalty) to name a few. (R.I.P.)
- Use your education to modernize their techniques, but do not lose sight of those fundamentals.
- Warren Buffet, “You don’t get paid for activity, you only get paid for being right.”
- If you find yourself in a hole stop digging and ask for help!
- Learn from every experience, good or bad.
Mineral buying is a tough business. I did it for 15 years while I supplemented through land work and consulting. There has always been a great deal of competition and that will never change. In order to gain success, you have to develop a niche unless you have more money than everyone else. Good luck. Wildcatting has a higher success rate than a mineral buyer.
As someone working in the Utica/Marcellus, the risk is the same and the ROI is a gamble. I’ve had people asking over $25,000 per Net Mineral Acre because all they know is great granny owned it and now it’s “worth more than gold”. Minerals around here range from $800-$8,000, and it may never pay off if drilling passes your area, pauses, hits a dry area, etc.
The best way to make a million bucks in the mineral business is to start with two million.
Why I always chuckle at the people that say never sell when owners get high priced offers and say the mineral companies must know something we dont. Meanwhile, the majority of mineral companies paying those high prices go out of business within 10 years if theyre lucky bc they cant make the money they spent on those high priced offers, yet on here its a horrible idea for mineral owners to sell. I will never understand that line of thinking on here regarding selling. I guess it comes down to emotion on selling grandpas minerals, but the first they thing do is sell Grandpas home, cars and land that have way more emotional connections, it makes little to no sense to me as a 78 yr old
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To NMoilboy…LOLOLOL!!!, But you summed it up right!
There’s an old saying “You can’t teach an Old Dog new tricks”
You better have a lot of capital because buying gas and oil rights in the right location where the drilling is going on or going to be in say 10 years is like throwing the dice first you offer let’s say $3000 a acre to buy well they pay that or alot more to lease if there going to drilling the area I’ve been offered $10000 per acre to buy it from me why sell when they leased it for $4800 pec acre and only one seam of gas well that lease ran out leased it again $5200 per acre so I say better have capitol each lease was 5 years
Bob, agree. I have no more sentimentality toward minerals I own than Apple stock.
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Start by managing your family’s own minerals. Verify title, close any paperwork gaps, get to know the assets very well. Identify the better assets and then calculate a potential value, contact the other owners in those assets and make offers. Buy out distant family members with similar holdings, etc.
@Kitchen solid advice.