A few generations ago, my great grandfather sold some land in West Texas. He retained 50% of the mineral rights. He bequeathed those rights to his 13 children, nephews and nieces. One of those was my Grandfather, who later bequeathed his share to his six kids. One of those six was my Father, who bequeathed it to his three sons. (one of them is me). So, I have one third of one sixth, of one thirteenth of 50% of the mineral rights. Last year that earned me a whopping $400. (In years past it was as high as $2000/year). I now have an unsolicited offer from an energy company to buy those mineral rights outright for a little over $5,200 (or an equivalent of around 13 years of royalties). My question is if I even consider this, should I expect to be able to negotiate them up from their original offer, and by how much? 10%? 50%? More? Or offers like this generally fixed? I have zero experience with anything like this.
I’d kinda wonder what chances of valuables are potentially buried beneath? Is it an oil or gas field? It’s already quite diluted, your share. You could contact them, say you are thinking of accepting, but thought it was worth a little more, just check the response. All these years, no really boon with the mineral rights, kinda doubt it’s on the cusp of a bonanza.
I figure any offer like that is a low ball offer. If you accept they are very happy. If you ask for more, they are happy. If you pass, not a big deal to them. I would either turn them down and see what happens or counter offer 3 - 4 times their offer.
Likely it's in the Permian Basin. One of the most active fracking areas in the US. Easiest way to figure value is to look at hotel prices in Big Spring Tx. When they're $300/night, that area is booming and they might negotiate. If they're around $100, they are looking for a deal and hoping for another boom cycle. Hard to put a value on something so diluted and with no seismic data.
Everything is negotiable. If you decide to take them up on their offer, they may even offer you less. I get form letters all the time with offers to lease a spot on my property for a billboard in Texas. They offer a lump sum or monthly minimum. I called once, and on the phone they said the offer amount in the letter is just an estimate. They have to come inspect the location before they will make a final offer.
Working backwards that’s what, $1,300,000 for the original 50%. Depending on the area it encompasses, it may be a good offer to just not have to deal with the accounting of splitting up payments, or a low ball. If they are a big company they in all reality probably paid more In staffing costs to analysis of cost/return for buying out existing claims than $5200.
I have an even smaller share that I inherited from my late husband. I get maybe $20/year. I keep getting these kinds of offers, too, but it costs nothing to hang on to the property, so why not? One possible reason is that some gas/oil fields are being looked at as CO2 sequestration sites. I recently got a pretty big offer on my shares in a gas field that was almost depleted and was being turned into such a site. Had the option of selling my shares or getting royalties on the sequestration, and chose the latter. As it happened, the project fell through, but it could have extended the income.
Same here; Martin County. Except my share is enough to fund my flying. I am one of the few people who root for higher oil prices. I keep a spreadsheet where I have logged every offer for 15 years. Some are truly low-balling, some are more competitive. PM me and I will share a sanitized version with you. To give you a feel for the disparity in offers, over the last 12 months my highest offer was 39 times the lowest offer. The low-baller is American Land and Minerals. Throw their offer in the trash. Also, you really need to know what is going on on the property. Some of these people are just trolling the tax rolls, which lag what is really going on by a year or two. Others are watching the production numbers filed with the RRC, which lags a couple of months. Others are watching drilling permits, and hoping to catch owners unaware that new production is coming, and scoop up a cheap deal. That $5,200 offer you just got sounds like they know something you don't. Also, there are brokers out there that will help you find the best deal (so they say). All that said, one reason to consider selling is your gain is taxed as a capital gain, while your royalties are taxed as ordinary income. A few years ago I took my two boys to the old farm, and showed them the wells, and told them they could do whatever they wanted with the mineral rights after I am gone. Then I tell the people who call I do not intend to sell, but to watch the obituaries and they can deal with my sons someday. And to answer your original question, yes, you can negotiate. There is plenty of competition out there. Good luck.
Very information post, Van. Thanks. The quote is kind of where I come down. Why is someone offering me money for something that's almost worthless (right now, anyway)? Your point about cap gains is an interesting one, though. I'm not sure how one could even value the gain. I have no record of the value of my shares when my husband died (which would be the baseline for determining the gain, not what was originally paid for them). I wouldn't even know where to start. In fact, when my parents died, my brother and I looked into getting valuations on the gas wells we inherited from them and were told it wasn't worth what it would cost for them to come up with a value. That leaves one with just paying cap gains on the total payment, which also doesn't seem right.
Selling to an entity outside a family loop can create a real quagmire for the existing interest holders to negotiate a new lease. Before going down that road offer to the existing interest holders first. A path of common interest that should be shared by all interest holders.
You are receiving a 0.0021 (0.2%) fraction of the original mineral rights. That offer currently values the full rights at $2,476,190. I'd do some research about the company and other mining/drilling going on in the area. I'd also consider when you received the $2000/year. Was it during a friendlier time for oil exploration/drilling/pumping? Was it before the current, rabid, irrational attack on fossil fuels? Politics is ephemeral. COVID taught us science is manipulated in service to politics. Policies change. Knowing what little I do about your situation, I'd likely keep it as I don't need $5,200. I may also take some of the advice here to probe them for a maximum offer. This will tell you what they value the rights.
Was there production at the time of the inheritance? If so, was there a property tax bill from the county? You could establish basis that way. We (brother, sister, and I) inherited ours when our mother died. At the time she died, the lease had been signed, but the wells had not been drilled, so there was not much "value" yet. As the executor, I think I valued it at $100 or some nominal value. My sister used that when she sold 1/2 her share a few years ago, so yes, she effectively paid CG on the whole amount of the sale.
Do you know how much acreage your mineral rights cover? Do you have the actual legal description of the share of mineral rights you own? You just can't sell your mineral rights to somebody without having a legal description of what you're selling. It sounds like to me that you're getting royalty checks based on your share of actual production on the overall totality of the leased mineral rights, thus the fluctuation in income. If you were getting paid on your share of the actual leases themselves (with no production), your income would be static depending upon the lease terms.
Yes your share is salable. It's a simple procedure to add an addendum to the mineral right deeds and/or lease agreements and convey them to a new buyer. You'd just be selling your rights as a shareholder and not the actual mineral rights themselves. If I was you I'd find out exactly what it is that you own regarding the actual legal descriptions of the land that the minerals rights are held under. In addition, I'd find out who owns the leases, the current production, and what the terms are. It could be that a potential buyer has an inside scoop on a multi-well drilling program about to take place on your leases and is looking for a nice big fat payout. Many astute landmen do this everyday.
Yes to production; no to property tax. We have the rights, not the property; someone else must own the property, so they'd pay the tax. Mineral rights and property are severable.
It’s all property and subject to Texas property tax. The land is classified as real estate, and the mineral rights are classified as minerals. http://pandai.com/faq/Mineral_FAQ_for_Website.pdf If for some reason you are not getting a property tax bill, I would let that sleeping dog lie.
I get two tax bills from Leon County and some other taxing authority who's name I forget at the moment. The tax comes to around $5 to $10/year. Some years when the Royalties are particularly low I don't get a bill.
Check the rrc map for recent permitting. If other E&P companies are now going deeper or drilling longer horizontal legs, it may be in your benefit to hold on. However, it’s hard to say without knowing how much acreage you hold. For instance if a new horizontal well is planned to drill under your existing production, you have to remember that decline curve is steep on the thinner strata plays. Some wells that will pay out enormously for three months then drop production by 70% and plateau until reworked a few years down the line. Then again, we are in Eagleford territory, so it’s a different process with mostly NGLs and Condensate vs Oil. Happy to dig around for you as I still do occasional Landman work outside family interests.
Wow this is interesting, so mineral rights are separated from the property and retained? Are there property tax bills for mineral rights or where are the owners logged? If you are receiving $400/year, what’s the average and what’s the lowest? If $400-$2000 per year then no I would not consider $5200. Everything is negotiable, maybe talk to your family before selling to someone else to see what their offers have been, maybe one of them would want to buy. Throw back a number to the company for fun and see what they say. But if you can get $2000/year then you should get a lot more to sell it. Calculate a few percent return where that cash can do better elsewhere. You’d be looking at a minimum of 12k up to 60k.
Yeah, well they'd get, what, 2¢? Don't forget I said the royalties have been all of about $20/year. Not worth it to them to bill me.
True, and that may well be why you don't get a bill. The county might have a floor below which it is not worth the cost of billing. Your original question was about establishing basis. I still recommend you go to the county tax collector or appraisal website and do a search on your name, or the family name, and see what it is there.
Unfortunatly the appraisal district is often incorrect on mineral ownership. I used to help them on the side for finding their inaccuracies while plotting ownership maps for leasing. Plus the tax base doesn’t always represent the production. For instance the Webb county acreage produces 40x more revenue than the Hardin County production. But due to a School District tax, the county ad valorem tax is 3x more than what we pay in Webb county. However the Appraisal District websites can be valuable as having a starting point to find where the property is physically located, then you input that information to the Texas RRC interactive map to find your area and newly permitted wells, together with existing producing well and their volumes.
Unfortunately, I inherited this from my late husband, whose name was--wait for it--William Jones. I've already had a couple of mix-ups where someone thought some mineral rights in the same area were his when in fact they belonged to a different William Jones. Honestly, I'm not sure it's worth the effort to try to trace that back. Now the rights I own in California were easy, and we have traced them all the way back to my grandfather, who was the first to purchase the rights. In fact, I'm still not sure why I haven't gone ahead and just given up the mineral rights to the people who've offered me money for them, but then again, it doesn't cost me to keep them, either. I'm still trying to make back what I had to pay to register the rights in my name instead of Will's.
If you are considering accepting the outside offer and are on good terms with the other family members, I'd definitely consider Roland's thoughts and reach out to see if anyone wants to match it and keep it in the fam.
Except in this case, I am the only family member that would have the resources to buy any of the others out.
I get a couple offers on mine every few months. The royalties don't pay a lot, but it pays enough to eat out after the taxes. Ours got a bit complicated a few years ago when the lease company had to split the lease up for some legal reason. I now have a percentage of 6 separate leases that meet on our house lot.
Your interest may or may not be saleable. It depends on what the deed says. I’d wager it’s not a divisible interest. You’ll spend more on an attorney to verify and negotiate than you’d get, I’d just keep cashing the checks until it amounts to something in the mid 5 figures. And this is neither legal nor tax advice.
I don't mean to be criticizing your advice. This is mostly me just thinking out loud (or maybe thinking while typing). It is most definitely saleable with the only cost to me being income tax, and Florida doesn't have income tax. And the checks have been on a steady decline for almost 20 years, with only occasional bumps. Even if they suddenly stabilized at the current rate it would take 13 years to break even, and that is if I don't calculate the value of money. I'm 70 now. What am I going to do with an extra $400 each year? Buy an extra gallon of avgas every week? I'm just glad the amounts involved are so low that it doesn't have to keep me awake worrying about it.
