Mineral rights owners in Texas can monetize interests by selling them outright or leasing their mineral rights. The upshot to leasing your mineral rights is that you will benefit from a steady revenue stream from lease payments of up to 25% and even occasional lease bonuses. The downside to leasing is that there is a chance that you could not receive payments 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. A less commonly used alternative to leasing or selling mineral rights in Texas is to option the right to buy, which enables the buyer to exercise that option within a specified time, while allowing the mineral rights seller to immediately pocket option fees.
Buying mineral rights in Texas can be a complex undertaking influenced by multiple market forces. The price of oil, gas and natural gas liquids (NGL) will always influence the value of mineral rights, making timing the most critical factor of buying mineral rights in Texas at the best multiple. The following are just a few other market forces to consider.
Right now, there are large pools of capital actively investing in mineral rights in Texas 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 selling mineral rights in Texas, you will have more than enough options, underscoring the need to be diligent and disciplined to ensure you attract the best offers.
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. For mineral rights owners in Texas looking to sell, you might just get an offer from a producer who already pays you for wells they operate, further improving your options.
A crucial factor to consider when selling 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 selling mineral rights, understanding the midstream pipeline takeaway capacity around your properties will provide more insight into the offers you receive from buyers. The good news is that new pipelines are due to be completed in the Permian Basin by 2022, improving takeaway capacity and multiples for mineral rights sellers in Texas.
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 sell if you own mineral rights 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 following checklist provides step by step information to help you avoid risks and acquire the best mineral rights for your needs.
Should you sell your mineral rights? By understanding how much your assets are worth you can make the most informed decision about whether to sell or hold. Buyers may insist on a simple formula of multiplying past annual income by three or four times to estimate value, but it also depends on the quality of your mineral rights and where they are located in Texas.
First off, selling your Texas mineral rights shouldn’t be rushed. Just like selling a home, it takes time and preparation. Don’t take the first offer or be pressured into deciding with a limited time offer.
Be sure to review your records to identify what types of mineral rights you have. If you have leased property to an operator, you own royalty interests. If not, you own non-participating or overriding royalty interests.
Texas mineral and royalty interest owners can sell all or a portion of their interests. Royalty interest owners have additional flexibility to sell portions of a section or even just the rights to a single wellbore on a well.
Selling mineral rights in Texas has never been easier. There are many ways to market and sell your mineral rights, however, some of the most common methods include online auctions and listing sites. Other methods include sealed bids and selling directly to a buyer.
To maximize the selling price, be sure to get multiple offers. Consider each offer and whether it matches your own estimate that incorporates multiples as well as asset quality.
Look for buyers who do not require special purchasing terms, such as an option to buy after 60 days. These buyers may intend to flip your mineral rights by accepting a lower price with you and selling at a higher price with another buyer.
Depending on whether you used a broker to close your sale, conveyance and deed records may be forwarded to your Texas county courthouse or you may be required to manually record these documents. In addition, the buyer must review and sign the revised Division of Interest provided by the operator.
Just as with any important transaction, be sure to keep copies of all sales contracts and land records for future reference or auditing purposes. Texas mineral and royalty sellers can benefit from purpose-built mineral management solutions to digitally track land and legal documents.
Selling mineral rights in Texas does not have to be an all-or-nothing transaction. Sell a portion of your mineral rights, then continue to sell incrementally over time. And if you have leased specific wellbores, you can continue to sell these mineral rights as additional wellbores are added to wells on your properties.
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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