Saturday, July 6, 2013

I Won't Sell, I Will Just Keep Leasing It

I just got a phone call from a man who is in need of raising significant money quickly and wanted to know "Who buys mineral rights?" It was in a shale play. And I said I'd buy them. At the right price. After a lengthy discussion, I found out his mineral rights are mortgaged (along with his land). I asked him how much the balance is. He told me and said "And that's why I want to sell my mineral rights, pay off the loan and use the rest to do some other things."

Based on his balance owed, how many acres he had, the location within the shale play, the royalty percentage in the oil & gas lease and some other factors, I was immediately taken aback. After having spent considerable time with him during the "interview," I was aghast that he thought his mineral rights would bring that much money. I knew they wouldn't. Not even close! So, I clarified that he was, indeed, hoping to get that much money, and then said "I sure wish I could help you out here but we're going to be much too far apart. They are not worth near that amount of money. The market won't pay near that much." And then I explained that the market is the barometer. Minerals are worth what the market says they are worth, in general. Sometimes, you can't even find a buyer, but when you can, a sale will never be for several times what the market is for like minerals. Unless the buyer is a buffoon!

The man agreed with all of that and I could tell he was disappointed. But, that was pretty much the end of it, I couldn't help him.

He then said that he'd just keep signing an oil & gas lease on them every five years and enjoy the lease bonus. I knew that he had suffered medical problems and needed money, so, I politely told him not to count on more lease bonus money, it might not come around again. I told him he could just sit and hope that the current Lessee drills and hits. But to realize that there is risk. I then pointed him to this site -- -- it has a pretty comprehensive discussion of the risks involved and factors to consider, whether to sell mineral rights or not. We then ended the conversation amicably and I wished him well.

I suppose the moral of this story is that those thinking of selling mineral rights need to understand market value, and to never count on lease bonus money coming around on a regular basis. Because more than likely, it won't. Good luck, mineral owners!