As a mineral owner, one of the most important questions you can ask yourself is whether selling mineral rights is in your best interests. For many, selling mineral rights is not the best decision. However, there are a number of factors to consider when selling your mineral rights. Below we will discuss the factors that you should consider when deciding whether to sell your mineral rights.
Factors to consider
Risk Tolerance: Can you handle some risk? Even in the most proven areas where finding oil and gas is nearly certain, it’s possible that your acreage may not produce as expected or at all. In most cases you can estimate what the production will be, but there is never a 100% guarantee. If you are extremely risk averse and getting a certain amount of money today is considerably more important than future income, selling may be an option.
Cash Need: Many mineral owners who sell their mineral rights have an immediate cash need and see selling as their only option. While selling may be a viable option, there are some other things to consider. Is the property currently leased? If so, selling is the only way to get some immediate cash from the property. If your property isn’t leased, getting the property leased and securing a lease bonus may meet your immediate cash need.
Sell a portion?: If you absolutely must sell, have you considered selling just a portion of the mineral rights? You can sell just a portion of your total ownership so that you retain some of the future value potential. When a mineral owner is in a situation where they need to sell, we often recommend selling a portion to meet the cash need rather than selling the entire amount.
Sale Value: It’s also important to consider how much you will get for selling your mineral rights compared to leasing your mineral rights. Mineral owners are often shocked to find out that the amount they will receive for a sale is not high enough to consider a sale versus a lease. As an example, you may be given a lease bonus equal to $1,000 / acre for your property. If someone wanted to buy that same property, they may offer you $3,000 / acre. If you simply leased your property 3 times you would made the same amount as a sale AND still had the opportunity to collect royalties in the future. If you do decide to sell, make sure the amount you receive in the sale compensates you for the potential income you would have received in the future.
Estate Planning: We hear from a number of owners who have decided to sell mineral rights for estate planning purposes. While it may seem like selling the mineral rights is the easiest solution, it may not provide your heirs with the biggest benefit. Mineral rights can be split just like cash among any number of heirs. We highly recommend splitting the mineral rights among the heirs and letting them decide how to handle them in the future. Some heirs may choose to sell for cash, and others may decide to keep them, so giving them the opportunity to make that decision when the time is right for them can be a good option.
While we typically recommend against the sale of your mineral rights, certain situations arise where selling makes the most sense. The most important thing is to consider all your options and make the best decision for you.
If you need advice, contact us for a free consultation and we can walk you through the decision process. We talk with mineral owners in the Marcellus Shale all the time about selling their mineral rights and we would be happy to speak with you too!
If you have decided to sell, we always recommend US Mineral Exchange because they are experts at helping mineral owners.