My mother (deceased) inherited a small mineral interest (< 5 acres) in Liberty District, Marshall County, WV. She received a “final offer lease letter” offering lease bonus of $4,700/acre and 17% royalty. She also has been approached by a separate party to buy her interest. We’re trying to decide whether to accept the lease or sell. How do we determine the current value of this interest and value at the date of her death to determine if the purchase offer is fair to make an educated decision for selling?
Hi @cpolatas!
Determining mineral values are HIGHLY dependent on your specific area, so thank you for providing a county for reference. Marshall County is rather active and this can be a good opportunity to research what you truly own and the best path forward.
To accomplish this, I would reach out to a “landman” from the company that made an offer and see what they can tell you! Use this for information only, you do NOT have to accept their offer if you do not wish to. There are many companies operating in that area and receiving an offer from more than one may help.
Second point to research- executive rights versus royalty rights. The executive rights means that you have the ability to sign a lease and negotiate the terms, whereas the royalty rights means you are entitled to the payment that is derived from that lease. In this case, you can have one, or both of them which means you can profit from the lease bonus, AND get paid the royalties.
As for selling your parcel, you can sign a lease and collect the bonus, then sell the property and collect an additional payment. BIG CAUTION though, your property is more valuable unleased than it is leased.
If you do sign a lease though, be on the lookout for certain terms that can cost you down the line. Some companies put in a “right of first refusal” which means that if any company makes you an offer, they can match it and buy it instead. This inherently may be less attractive for some companies thus reducing what they may offer.
Another thing I have seen is limitation on what will receive royalties. A recent lease I saw stated that the owner will NOT be paid on natural gas liquids or their derivatives. This is a substantial portion of what a well produces and not being paid on that effectively cut their value in half.
Basically, read every word before you sign, and if you aren’t 100% positive of what it means, ask for an explanation and or hold off on signing until you know its implications.
Thanks, for your insight! I’m locked into the terms of the lease as I’m part of a forced pool. I don’t have a great desire to keep the mineral interest but still not sure how best to go about determining the value to consider if the offer is fair. What type of independent/unbiased information would the “landsman” provide? Any assistance is greatly appreciated!
@cpolatas one thing you want to consider is the taxes. Royalties are taxed at full ordinary income rates, which is the highest rate possible. I’ve dealt with people that it has screwed up their SSI/SSA benefits b/c its included in their yearly income. When you sell, you are usually taxed at long-term rates and it isnt income gains, so its a much better deal.
If you want to sell, it will be most valuable before you sign a lease b/c more than likely the buyer will want to negotiate their own lease. If you sign a lease, unless you have a high quality lease, you will lower that value.
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Thanks for your response! I’m aware of the tax impact and is something I’m taking into consideration. I appreciate your insight.