Greetings, We have a family corporation, originally incorporated in the 1920’s. The shareholders are 3 siblings aged 64 to 70. I have been running the corporation, and believe it is time to consider selling. The corporation’s assets consist of multiple small sub surface mineral rights in at least 12 counties in OK, the most lucrative in Grady. Not sure where to start. The interests have been passively managed for 2 generations, we haven’t even performed appraisal of the rights for more than 40 years. I do have the original purchase information that I have copied to digital form. Some of the Grady Co. interests are being produced by Gulfport, and are currently paying royalty checks of around $20k per mo. Any info appreciated.
Would suggest that you do get a petroleum engineer to appraise your holdings so that you know what you have and what the potential for future royalties might be. Otherwise, you would be going in blind to any negotiations.
Also, talk with your attorneys, CPAs and financial planners about estate planning. Questions to ponder-do we want to pass onto the next generation and if so, how? Passive management or get them informed on how to do it themselves. Do we want to give to charity? Do we want to balance our income from royalties with other retirement income and social security. Also, you need to have the cost basis as you may have to pay capital gains tax on a sale.
There are some good brokers out there who can help you market your minerals. Also, be aware that you may get some lowball offers from all sorts of buyers. Starting with an engineer’s appraisal is a good baseline for understanding what you have. They will often do an SEC style decline analysis with various discount factors applied-most frequent is 10%. One has to account for the time value of money. $100 today is not $100 tomorrow.
Most offers will be below the appraisal value as they want to make a profit.
“Fair” is the amount agreed upon by a willing and informed seller under no compulsion to sell and a willing and informed buyer under no compulsion to buy. Get “informed” first!
I agree with Martha. She’s on point. With $20k per month in royalty income, you can definitely justify spending money on a PE, and an attorney to evaluate your options.
Outside of flat out selling, you could always have a company manage them for you.
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Also consider potential capital gains implications. You must know your cost basis before entering into any contract. Whether a Section 1031 exchange is possible would need examination unless the parties just wanted to cash out.
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All good suggestions and answers below. My only caution with reaching out to attorneys is to make sure they are well versed in oil and gas matters and have their defined compensation up front. You don’t want your standard family practice lawyer fumbling through agreements and spending more time than is necessary (thus charging you more $) to overcomplicate the situation.
Your first/next steps depend on the timeline of when you’re looking to divest all of these assets. If you would like to sell them within the next 5-10 years for example, you have the luxury of being patient and you could potentially maximize your overall return by selling small pieces at a time at their own high relative prices based on drilling activity (similar to timing out a stock and trying to sell at high price). There will be a target demographic of buyers who specialize in these interests and can maximize your value.
If you’re looking to just get the most you can out of the entire inventory of assets within the next year, you will likely want to take a different approach as there will be different buyers that focus on those types of acquisitions since not all properties are created equal and they can give you more of a blended offer.