Are you considering buying mineral rights in Texas? Before you take the next steps, familiarize yourself with the comprehensive information we’ve presented in this blog post. It’s not just for beginners — even the savviest mineral and royalty investors can benefit from our 10-point checklist to making confident and informed decisions in the Texas mineral rights market.
Leasing vs. Buying Mineral Rights in Texas
In Texas, mineral rights investors can either choose to buy mineral rights outright or lease them. Leasing offers a way to avoid the risks associated with a hefty capital investment while reaping the benefits of oil, gas and natural gas liquids (NGL) production returns on the leased land. The downside to leasing is that there is a chance that you could receive no payment if oil or gas is not found, payments are low because the operator is holding the lease by production, and lease payments will decline over time. An alternative, though less common, pathway is to option the right to buy, offering the opportunity to exercise purchase within a specific timeframe.
Market Forces Shaping the Texas Mineral Rights Market
Buying mineral rights in Texas can be a complex undertaking influenced by multiple market forces. The fluctuating prices of oil, gas, and NGL invariably impact the value of mineral rights, making timing the most crucial factor to secure lucrative deals. Let’s delve into a few more forces you need to consider:
Big Buckets of Cash
Currently, there are large pools of capital actively investing in Texas mineral rights to gain exposure to world class basins like the Permian, including mineral funds, trusts, hedge funds, venture capital firms, master limited partnerships and family offices. Add to these buckets of cash government agencies, pension funds, sovereign wealth funds and a large pool of individual mineral rights buyers. If you are contemplating investing, it’s critical to stay informed about the intense competition — aptly described by the Houston Chronicle as a knife fight in the Permian. Nonetheless, with careful planning, ample opportunities to secure competitive offers remain across Texas.
Operators Are Non-Ops, Too
Many oil and gas operators also hold extensive non-operated working interests, often owning mineral rights in more wells than they actually operate. E&Ps also consolidate acreage to streamline operations, given that the cost of debt for E&Ps is cheaper and more available. If you are buying mineral rights in Texas, take advantage of E&Ps thirst for expansion by partnering with operators to acquire mineral rights in their areas of interest, broker and flip acquisitions.
Evolving Midstream Infrastructure
A crucial factor to consider when buying mineral rights in Texas is midstream takeaway capacity for oil, natural gas, NGL and produced water. Areas of new development and remote locations increase the lifting costs for producers because transportation costs are higher absent robust gathering and pipeline infrastructure. If you are buying mineral rights in Texas, understanding the midstream pipeline takeaway capacity in your areas of interest will help you pinpoint bottlenecks and opportunities to get in on acquisitions before valuations increase from midstream build out.
Natural Gas and the Energy Transition
Natural gas is an increasingly attractive investment for mineral rights buyers. Primarily serving local markets and less impacted by global price swings like oil, natural gas prices are relatively stable. Natural gas is also a vital component of the new energy mix as Texas navigates the energy transition, adding wind to the sail of prices. Factor this trend into your decision to buy in pure gas plays like the Barnett or Haynesville Shales or areas of the Permian where natural gas has been flared pending midstream pipeline takeaway capacity improvements.
The Essential 10-Point Checklist to Buying Mineral Rights in Texas
1. Recognize the Risks
There are many risks associated with buying mineral rights. Invest some time in understanding the lifecycle of a well—this can help you circumvent potential investment traps such as buying interest in a closely spaced unconventional Eagle Ford well whose production will decline sharply in the first year or paying a three-times multiple for an older east Texas stripper well that might be plugged in one year.
2. Identify What Types of Mineral Rights You Want To Buy
Want to buy Texas mineral rights ahead of drilling projects? Consider investing in non-producing mineral interests or acquire producing minerals through royalty interests, overriding or non-participating royalty interests.
3. Pick an Area of Interest
Understanding the unique production potential, geology and market for buying minerals in a specific Texas region can help you pinpoint opportunities faster. Get familiar with an area of interest, such as the myriad Permian sub-basins, Eagle Ford, Barnett and Haynesville Shale.
4. Find a Seller
There are multiple outlets where sellers list their mineral rights, including auction sites and online brokers. Look for services that offer choice and transparency. In Texas, Enverus provides the names of mineral owners via Texas Mineral Appraisal Tax Rolls which are publicly published by counties. Enverus Courthouse also allows for searching for owners by abstract or unique key word search in most oil and producing counties in Texas and New Mexico.
5. Estimate Asset Value
Use a simple rule of thumb to estimate the asset value: multiply the owner’s last year’s income by a set multiple (e.g., three- or four-times annual income). Buyers who want to be competitive should also consider location and asset quality in their offer, which can vary widely across Texas basins. Using Enverus Forecast Studio or Forecasted Production can help run a more accurate proven developed producing (PDP) analysis. Know if there is immediate upside in various states using Enverus LandTrac Leases, Courthouse, Activity Analytics and Oklahoma Apps/Orders to find the hidden edge.
6. Check the Facts
The most crucial step in buying mineral rights in Texas is researching what you intend to buy, including historical well performance and production from nearby wells. Verify that the owner has the rights to sell and ensure that the lease does not contain “held by production” clauses that would allow the operator to produce very little just to hold the lease.
7. Make Informed Offers
When presenting an offer for mineral rights, it’s crucial to develop a well-researched proposal that reflects both the asset’s value and your financial goals, including a clear outline of purchase price, terms and conditions contoured by a comprehensive due diligence and valuation analysis.
8. Transfer Ownership
If the seller used a broker, the necessary conveyance and deed will be filed with the appropriate Texas county courthouse and operator. Importantly, expect the operator to send you a revised Division of Interest for signature before you will receive payments on your mineral rights.
9. Keep Detailed Records
Buying and building a portfolio of mineral interests requires careful management of land records and revenue statements. Be sure to store these in a digital folder for quick reference and auditing purposes. Texas mineral buyers can benefit from purpose-built mineral rights management solutions to track land and legal records. Both Enverus MineralSoft and EnergyLink® provide workflows to help you manage and stay on top of your ownership.
10. Maintain and Negotiate Leases
If you are buying mineral rights in Texas, specifically mineral and/or royalty interests, be aware that you are assuming the burden of maintaining and negotiating leases with oil and gas operators. In contrast, overriding royalty interests, non-participating royalty interests and wellbore interests do not, but these revenue streams end when leases expire in Texas.
Buying mineral rights in Texas can resemble a complex chess game, where the right blend of timing, insightful understanding and meticulous scrutiny can yield substantial returns. As with other investments, it is vital to weigh the risks against potential benefits and seek expert advice when necessary. Whether your goal is substantial financial gain or diversifying your investment portfolio, the rich terrain of Texas may very well hold the key to unlocking your financial aspirations.
Market Forces Shaping The Texas Mineral Rights Market
Need assistance with your mineral rights acquisition strategy? Enverus is here to help you succeed with industry-leading mineral management software, robust oil and gas datasets, and a deep bench of mineral management experts.
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