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- Should I sell my minerals and royalties? (Updated 2022)
This is a question I get asked very often. Most of the time, clients want to know because they have started to receive offers and/or they are receiving increasing offer amounts for their interests from mineral buyers. This has especially been the case as the price of oil has reached new highs lately. For others, they may need or want to sell for personal reasons, have been sitting on their asset for quite some time and are starting to consider if they should sell, or they may be just curious as to what kind of offers they could receive. I wish the answer were simple, but along with many other factors that help answer the question, "How much do mineral rights sell for?", it also varies based on the stage of development your interests are in. In this blog, we will educate you on these stages: Unleased/Undeveloped, Proven Undeveloped (PUD), Proven Developed Producing (PDP), or Proven Developed Non-Producing (PDNP): When is the best time to sell my minerals and royalties? The good news is there are multiple opportunities during these four stages of development but as you can see from the graph below, there are also times when you may want to hold them for a little while longer until some activity starts to shake loose. But, remember... Not every area where there is oil and gas is created equal nor is every shale play, some are more productive than others. It should also be stated that the information described below will change should there be more than one productive zone or horizon (for example, the Permian Basin of west Texas has multiple productive horizons). The same thoughts outlined below should be applied to the respective productive horizon capable of producing in paying quantities. The only caveat to this would be how long would it take for the Operator to commence development of these additional horizons. This could honestly, take decades. The rules of supply and demand, commodity prices, and market cycles also play a huge role and shouldn't be overlooked. However, for all intent and purpose we'll simply focus on the four development stages and the selling opportunities therein. Want to talk about it instead? Fill out the form or schedule a complimentary consultation. Let's go through it together: 1 - Unleased/Undeveloped: At this stage, unless it appears leasing and drilling activity is moving your way, it's best to sit back and be patient. You don't want to sell your minerals when they are not worth anything. You aren't being taxed on them if they are not being developed anyway. If you are a long-term investor this could be a good time to buy unleased/undeveloped rights if you feel the area they reside in has potential to be developed and if they could be acquired at a good price. Is this a good time to sell? This would most likely be the least opportune time to sell your mineral rights; you definitely want to wait until one of the next milestones occur. 2 - New lease taken/bought: When a lease is taken (or bought) by an Operator from the mineral owner, the value of the asset will go up slightly. Note: the duration and terms of the lease are very important at this stage. It matters greatly if you negotiate a 6-month versus a 3/5/7-year lease. The shorter the lease term, the more likely development is near and imminent. Other factors that add value are: Royalty percentage (cost-free, of course), and Whether the lease contains (or is absent) a drilling commitment, good pooling and Pugh clauses, and an extension: If, after the acreage is leased, and no development happens for some time, the value will start to decline as the lease expiration date approaches. If there is an extension clause in the lease, it could be a deciding factor for a buyer, and they will decide if this extension gives more or less value to the asset. I've seen buyers go both ways: Some buyers will wait to see if the Operator chooses to extend the lease and others will buy it in hopes of getting some money back on their investment. Chances are, if they do decide to make an offer to purchase your interests, they will attempt to secure the asset at a lower cost. Other buyers may feel it could be too much of a risk (even though they could receive some extension bonus money) to have their money tied up during this extension period without knowing whether drilling will take place in the future. Bottom line: A good lease is important! It will behoove the mineral owner in the long run to have a favorable royalty rate, pooling provision, continuous development, Pugh clauses, and whether a drilling commitment (most likely it won't be) is dictated in their lease agreement from the start. This is why it's good to have a knowledgeable Landman or attorney to assist in the beginning. Is this a good time to sell? This would be the first milestone one would want to wait for if the thought of selling your mineral rights has crossed your mind; however, it is still not the most opportune time to sell even a percentage of your minerals. 3 - Value decreases while time passes 4 - One or more permits are filed Alright! An Operator permits a well affecting your interests causing your value to go up a little more. The more permits filed, the more valuable your acreage becomes. If there are permits filed on adjacent/contiguous lands, this could potentially add value to your interests as well. However, should time start to pass with no drilling activity taking place for a year or more, the value will decline as permits typically expire after one year with no development (Stage 3). The next opportunity for added value will be when the Operator renews/files new permits and starts drilling. Is this a good time to sell? This is the second time one would really want to consider selling a percentage of their mineral and/or royalty rights. It's still not the best timing, that's coming up. 5 - Should no drilling take place soon, values will continue to decrease as permits expire 6 - PUD Stage: Drilling starts Oh boy, now it's about to get interesting. When an Operator starts drilling one or multiple wells affecting your interests it causes the value to go up exponentially more. While an Operator can only drill one well at a time, they can drill several wells back-to-back. Hopefully, they have plans to consecutively drill several wells and hopefully they complete (or frack) as many of those wells as possible. The more wells the Operator initially drills and completes, the higher the value of your interests will go due to the potential buyer receiving the flush production from those wells. What's most likely to happen is the Operator may only drill one or two wells and then wait for them to start producing so they can analyze the production results from their drilling and completion methods used. This acreage will now enter the Proven Developed (PDP) and the Proven UnDeveloped (PUD) stages. This is a stage that mineral and royalty buyers both love and hate. They love the flush production and ROI they will soon be receiving from the acreage classified as PDP but don't like that mineral and royalty owners will expect them to pay handsomely for the acreage that is not yet producing, the PUD acreage. Nowadays, mineral and royalty buyers don't like to attribute much value to the Proven UnDeveloped (PUD) acreage, but they will pay for it so long as the seller expectations for the non-producing interests are not over inflated. The only acreage mineral and royalty buyers like to give value to is the producing acreage. For the rest of the non-producing PUD acreage, they may offer a little value, but will not pay a lot for it. However, this is not always the case as I always say: "Something is only worth what someone is willing to pay for it". By these standards, a mineral and royalty buyer may find value in paying up for PUD acreage based on the potential future value if an Operator starts going into the development stage. Should an Operator start developing the PUD acreage, the value of your interests at that point far exceeds what most mineral and royalty buyers would be willing to pay. Whether they pay very little or pay up, they will consider timing and the future value. (Note: the wells that don't get completed at this time are now called Drilled, UnCompleted wells (DUCs)). Is this a good time to sell? At this stage, values that mineral and royalty buyers throw out may range greatly as the results from the newly drilled wells are somewhat uncertain and the acreage has not been de-risked yet. Should you choose to sell at this point, it would be best to only sell a percentage of your interests and at the highest price possible. Seriously, the absolute highest price possible and you will want to have an experienced Landman assisting you in the process! This will allow you the opportunity of taking some cash and substantial level of risk off the table while hedging your bets on future potential. This could potentially be one of the best times to sell provided you have a mineral and royalty buyer willing to pay up for not only the soon to be producing acreage but also the acreage the DUCs and other non-producing acreage covers. Another thing to consider is that once the Operator drills and completes one to two wells, your interests may be considered Held by Production (HBP). This means the Operator has fulfilled their drilling obligations for the foreseeable future with nothing forcing them to come back and drill any new wells. This is not what you want. Let's say you negotiated a three-year lease and in year two the Operator drills two wells thereby fulfilling their drilling obligations per the terms and conditions of your lease and at the same time HBP'ing your interests. This could afford the Operator the opportunity to sit back and possibly wait another 10 years completely passing up the expiration of your three-year lease so long as the wells continue to produce in paying quantities before they may want to come back and drill again. Is this to say that mineral and royalty buyers won't want to buy your interest? They more than likely will, they just won't pay top dollar prices for it. Again, you need a good Landman or attorney to help negotiate a good lease in the beginning to get the best terms on your behalf. 7 - Production from first well(s) start to decrease, as do values 8 - PDNP Stage: Additional wells drilled, but not completed Moving forward, if the Operator happened to drill several wells and only completed a few (one to two) of those wells, the acreage as a whole is now considered to be Proven Developed, Non-Producing (PDNP). Mineral and royalty buyers everywhere are going to be watching the results of those newly completed wells very carefully. Should those wells turn out good, those same mineral and royalty buyers are going to make haste and start contacting other mineral and royalty owners affected by those wells and contiguous/surrounding acreage in the area. After approximately the first eight to ten months initial production, the value of your interests will start to decline as production continues to flow (as the product is being produced/drained from the acreage affecting your interests). At this point, should the Operator fail to return to complete any of those DUCs, the acreage value will start to sharply decline. The more time that passes, your interests will bleed off value as the wells decline rate starts to level off, at which point the value of your interests will be based more on a PDP value as mentioned above in stage 6. Is this a good time to sell? This could still be a good time to sell a percentage of your interests. However, the better time would have been while the drilling activity was fresh as mineral and royalty buyers apply great consideration to the time value of money and their ROI. Naturally, just like any investment, the buyer wants to start making as much money as possible and as quickly as possible and it's no different when buying and selling minerals and royalties. Mineral and royalty buyers pretty much know what to expect from any new wells and they apply a cap to what they would be willing to pay to acquire new or additional interests under acreage that has achieved this level of production or classification, PDP and PDNP. 9 - Production from first well(s) continues to decrease 10 - Additional drilled wells are being completed The Operator has decided to return, they are completing any DUCs and going to drill and complete the last few wells thereby fully developing the acreage. It should go without saying now that two things are going to happen: The value of your interests is going to go up again. How much it goes up will be dependent on how many new wells are being completed and new wells drilled and completed. Word will get out fast those DUCs are going into their completion stages thereby setting the stage for new and flush production and heightened mineral and royalty buyer activity once again. Is this a good time to sell? Once again, mineral and royalty buyers will know what kind of production to expect from the new wells and they can and will apply a cap to what they would be willing to pay for new or additional interests under this acreage. It's still not a bad time to sell, however, unfortunately it is also not likely you will get what you feel the property could be worth and what a buyer is willing to pay will typically not be in line with your expectations (I explain more about this further). 11 - PDP Stage: Acreage becomes fully developed As the Operator finishes the drilling and completion of the last few wells, they reach full development and the wells start producing, the value of your interests will drop substantially as the well production declines. Horizontal wells typically decline at a faster rate than vertical wells and produce a steeper decline curve before leveling out (yet still declining), which every mineral and royalty buyer will consider when making any offers to purchase. Again, the buyer offer price and seller expectations will most likely not be in line. "At every milestone development there is time to sell and a time to wait." Have questions or need clarification on your particular needs? Contact us today. Selling Minerals and Royalties Understanding the Buyer/Seller Gap It is very rare for mineral and royalty buyers and sellers to agree on how mineral and royalty interests should be valued. The gap between buyer and seller expectations is typically the size of the Grand Canyon at best before the two come close to an agreed value. If this happens, the buyer usually will come up slightly in price but most of the time the seller is the one that must lower their expectations more than what the buyer is willing to come up in value. It's rare for the seller to have total control and have buyers bend to their will with inflated asking prices. The best opportunity for sellers to get the most value would be starting at stages 6-8. The reason why I stated at both Stage 10 and 11 the seller's expectations won't be in line with the buyer's offer is because 99.9% they aren't (generally speaking, this really goes for any stage)! Here are a few reasons as to why: 1. Sellers are not familiar with the various production stages of developing oil and gas minerals nor are they completely understanding or knowledgeable about how to value minerals and royalties in each stage of development. Most sellers think oil and gas production will continue forever while also knowing that it is a declining asset. Kind of weird. Bottom line: Sellers should know their asset inside and out, know the market, and what direction buyers are heading. Speak to a Landman or attorney specific to your interests if you need help. It will save you a lot of time and headaches! 2. Sellers want top dollar for every drop of oil or gas that could be squeezed from beneath their property when in fact, no Operator will ever be able to produce and extract every single drop or barrel of oil or mcf of gas from the land. At some point, it will not be economic to even attempt producing the acreage any further. Bottom line: Buyers can't and won't compensate sellers for every drop of production their interests are capable of producing. 3. Most (not all) buyers are considered aggregators, meaning they will buy several different assets and when they feel they have a good enough bundle of assets to sell, they will sell to a larger mineral and royalty buyer and then they'll do it again and again. But no matter what, any aggregator/buyer will apply the decline rate of each well affecting your interests, apply that same decline rate to any future wells, and try to apply some timeframe when future development may take place. It greatly depends on past development, how much room is left for future development, and some guess work unless they have some other inside info regarding the Operator's plans. They will go through this same process again and again when they go to sell their assets or fund to a larger buyer. 4. On top of not paying for all the production a property can produce while also applying the decline curve of each well, the price buyers are willing to pay is further reduced based on their risk vs. reward metrics. While reducing the price they can pay even further so they can make a good ROI while it is going through its various production stages. The price could be reduced even further because when it's time for the buyer to then become the seller, they'll want to make money when they go to sell the asset. Most buyers have some time frame in mind and know about when they would be willing to divest of their assets even before they start buying. Not to mention, buyers usually have overhead like employee salaries, office space, and other operating costs they must pay. Bottom line: Buyers can't pay what sellers typically want, they just can't. There must be enough "meat on the bone" for when the buyers choose to sell. 5. Sellers don't really care about what hoops the buyers have to jump through. Sellers typically want what they want, however, at the end of the day something is only worth what someone is willing to pay for it and this goes for anything. Bottom line: Sellers need to consider all aspects of the development, production, and business of being a mineral and royalty buyer. It's more than what they think and there is a considerable level of risk that needs to be taken into account. Wrapping Up You will notice that I not once mentioned during any of the declining stages that it would be an opportune time to sell any of your mineral and/or royalty interests. One should, at all costs, wait for one of the important milestones described herein to consider selling some or all their interests. It should also be mentioned that everyone's situation is different, and life happens to us all. Should something come up or happen, it's important to understand what stage of development your interests are in at any given time. When you have this understanding, you can be more realistic about what to expect should you need to sell or simply choose to sell. I hope this article help does that for you. To recap with some fun: It is equally important to know that owning mineral and royalty interests come with great responsibility and should always be treated as an asset. Forget any emotional attachment as it would be more wrong to not take advantage of selling some or all your interests if it makes sense: to deny a son or daughter, niece or nephew, or grandson or granddaughter a chance to go to college, to be strapped for money and allow yourself to drive an unsafe vehicle, or allow yourself to file bankruptcy, and heaven forbid, allow yourself to lose this incredible asset to the bank over something foolish like not selling some of your mineral and/or royalty interests when the need and opportunity presented itself. There could be countless reasons why one would want to sell some or all their mineral and/or royalty interests. Everyone's situation is different. In addition to the information included here, there is also a people component to buying and selling minerals and royalties. I mentioned a couple times throughout that you should have an experienced Landman or attorney helping you along the way. A professional with a close network of top industry buyers they regularly do deals with can help you get top dollar for your interests, help manage the process, and make your experience more enjoyable. Thanks for hanging in there with me. I know this is a lot; my aim is to help mineral and royalty owners make smart and confident decisions with their interests. Contact us today if you need further help and don't forget to visit our FAQ page where we cover a wide range of topics. Thanks for reading the VOG Blog!
- Understanding Net Mineral Acres and Net Royalty Acres
Welcome back, friends! I find myself explaining the differences between Net Mineral Acres (NMA) and Net Royalty Acres (NRA) to a lot of my clients and for good reason. These terms are used a lot in the industry yet most owners don't know what they mean, if they own NMA or NRA, and how to use these terms correctly when speaking to potential buyers, in particular. It can cost an interest owner hundreds if not thousands of dollars if they don't know what these terms mean. In fact, I recently encountered a professional Land Manager at a large oil and gas company that said he had never heard of Net Royalty Acres! It blew my mind (and blew the deal, but that's another story) which goes to show you how important it is to understand what these two terms mean. To not bore you with words and long sentences with this tutorial, I decided to get creative and explain NMA and NRA in another fun infographic! If you like this one, check out our other infographics explaining Independent vs. In-House Landman, Surface, Mineral, Executive, and Royalty Rights, and What is Working Interest? That's all there is to it! By now, you should be able to speak confidently and clearly about what you own and how to talk to buyers, should that need arise. Although this is not where the calculations end (figuring out your Division of Interest is next), it's a great place to start when educating yourself on the value of your assets. Contact us if you need further help, we're always here to give you guidance. Want to learn more? We cover a lot of details on our FAQ page! Thanks for reading the VOG Blog!
- Hedging Inflation with Minerals and Royalties (Updated 2022)
Are mineral rights a good investment? If you're looking for reasons to invest in oil and gas, the best way to be sure about your decision is to unlearn what you think you know and re-learn what's new and changed in the industry. 2022 Update This article has been updated to reflect the economical changes not only in the US but also around the globe. As we rise out of the ashes of Covid, the rate of inflation is at a 40-year high, having risen at its fastest pace since 1982. Russia has invaded Ukraine, which is likely to push food and commodity prices up higher. Wages have increased dramatically as one can tell when driving by a fast food restaurant advertising hourly rates starting at $15 per hour with these rising labor wages are to be passed onto their customers. It's been a wild ride and it doesn't look poised to end anytime soon. So how does owning minerals and royalties affect the owner during a hyper inflationary period? Buying Mineral and Royalty Interests as a Hedge Against Inflation Many investors have started to think seriously about gobbling up any investment that could act as a hedge against inflation. It is a topic that should be on most minds, investor or not, at this juncture in time because we will likely be dealing with a very extreme bout of inflation over the next 10-20 years. However, there are a few investments that can be used as a hedge against inflation where their value stays equal or increases faster than the rate of inflation (or the decline of the dollar). and they are: · Gold and silver (physical, futures, and stock in gold companies) · Fine art · Vintage cars · Real estate · Oil and natural gas commodities Of course, there are probably several other good strategies, however we will only focus on the oil and gas industry. Disclaimer: This is not financial advice, but the investment strategy I’m about to mention is sound and proven; you get to ride the wave of an asset class not known to many investors - buying mineral and royalty interests. It checks several boxes that make for a great investment to hedge against inflation. How the Price of Oil and Gas Affects Mineral and Royalty Owners During the time in which an oil and gas Operator is drilling and producing, they are selling that oil at certain price per barrel (bbl) and the gas at a certain price per million cubic feet (mcf). When the price of oil and gas are on the decline, Operators hedge their production by locking in a price to sell it. Conversely, in times when the price of oil and natural gas are on the way up, Operators don’t typically lock in the price to sell their production because they want to sell it at the present higher market rate. If the price is steadily increasing and there is fear of a price crash, they may lock in a price at that point and see what happens. However, when oil and natural gas prices are just starting their run up, Operators will ride the wave, typically increase production, and start producing as many wells as possible hoping to cash in on the higher oil and natural gas prices. During this time when Operators are selling production at higher rates, the owners of mineral and royalty interests under lands the Operators are producing from will also benefit by seeing higher and higher monthly royalty checks. (This is another reason why it’s good to have a diversified mineral and royalty interest portfolio under good Operators and it’s also important to understand the stages of production.) "High oil and gas prices = High royalty checks for mineral & royalty owners." Thinking of investing in minerals and royalties? You must first understand three important things. Oil and gas is here to stay for the next 10-15-20 years. There's just a few more good friends alongside them (hint if you've been living under a rock it's renewables) Make sure you understand the risks and rewards of Investing 101. If you don't, you will have unrealistic expectations and low chances of success. Ensure you have a reputable industry expert with a solid network so you can reach the real and serious players in the industry. Like most commodities, oil and gas is heavily tied to supply and demand. We've seen the price per barrel of oil start to steadily climb so long as the major global producers keep their production in check and don’t flood the crude oil gates. Hedge and mutual funds in the energy sector have investments in this asset class and have been reaping the benefits for decades. They have had within their baskets a vast amount of oil and natural gas operating companies listed on the S&P 500 and New York Stock Exchange. This asset class is still growing and the intricacies of investing in this specialized area of oil and gas is largely unbeknownst to the common investor. Truth is, anyone can invest with almost no minimum investment requirements. Here are the 10 great reasons you should consider when investing in oil and gas minerals and royalties and how to get started: Reason #1: There are billions of acres available for anyone to invest in. The US is unique in that it has billions of acres where anyone, individuals, companies, etc. can own minerals and royalties, whereas in other countries the government owns the minerals and individuals are only allowed to purchase the surface rights. Reason #2: You (and your family) own minerals and royalties forever. With the exception of overriding royalties (however, these are still a good investment if bought with the right criteria and at a reasonable price), once you own minerals and royalties, they are yours forever until you decide to sell them. This means your heirs can also inherit them should you decide to pass them down. Reason #3: They are a source of passive income. Anyone like mailbox money? Minerals and royalties can create passive income for 30-40 years and maybe even for a lifetime. Once you own minerals and royalties and they start producing, you can just sit back and collect and even earn money while you sleep. If they’re eventually going to be passed down to your heirs, they will receive the royalties too. Reason #4: Low-cost maintenance compared to other investments. Unlike other investments in oil and gas, once the purchase of minerals and royalties is complete there are no monthly expenditures required and no further deployment of capital. Once your minerals and royalties become producing, you’ll have to keep up with lease maintenance, if applicable to you, and make sure you are being paid correctly (that’s what Mineral Managers are for). Once owned, unlike other investments in real estate (which is exactly what minerals and royalties are), there are no annual taxes owed on minerals and royalties until they become producing. Reason #5: Low transactional regulations. The actual buying and selling of minerals and royalties is not heavily regulated like buying and selling other forms of real estate. Individual investors are not required to have a broker’s license or certifications to engage in the buying and selling of minerals and royalties (although I highly recommend hiring a professional to help). Reason #6: Diversify, diversify, diversify! A good diversification model is to own both oil and gas minerals and/or royalties in your portfolio across various areas of the United States. For example, when looking at opportunities to purchase minerals and royalties, I want to own oil producing minerals and royalties in the Eagle Ford shale, located in Southern Texas, and some natural gas producing minerals and royalties also within the Eagle Ford shale. Furthermore, I want to apply this same thought process when acquiring minerals and royalties in the Permian basin of west Texas and southeast New Mexico as well as the Haynesville shale in eastern Texas and western Louisiana, and any other producing area of the US. Reason for this is that the cost to produce and extract oil and gas is different in different areas. So, when the price of oil and/or gas rises and falls, the areas in which it costs more to produce and extract oil and gas will see less development and production therefore sidelining development in those areas. Reason #7: Invest in strong, prudent operators and companies. In addition to #7, owning diversified minerals and royalties under technical and prudent operating companies with strong balance sheets creates an even further diversified and stronger portfolio. The better the company and the better they are at operating your specific minerals, the more they will be worth. Reason #8: Short-term positive - recoup your investment early. In the short-term, investing in oil and gas minerals and royalties is a great investment if one can purchase the minerals and royalties right before new wells come online. This is when you can get most of your investment back as this is the point when production is at its greatest. Reason #9: Long-term positive - ride the gravy train. Once you have recouped your initial investment in the short-term, the extra mailbox money you’ll continue to receive is just like owning a ticket on the gravy train express for as long as the well(s) stay producing. Keep in mind that the well(s) will eventually stop producing but you have the potential to reap significant gains from your investment in the short and the long-term. Reason #10: 1031 tax deferred exchange. You can buy and sell minerals and royalties through the usage of a 1031 exchange which must be transacted through a qualified 1031 intermediary thereby creating the ability to defer your property sale tax to a later date. The only caveat is that the real estate (house, land, or other minerals and/or royalties) you buy must be of equal or greater value. So long as you follow this rule, you could do this over and over again for as many years as you’d like to defer your taxes until the final date in which you decide to sell your assets and not buy any others. One more tip: It always helps to look at the opposite side's perspective. Buyers need sellers so get educated on their point of view, find out what to look for when evaluating prospects, and you will be glad you took the time to understand their concerns when the opportunity to buy presents itself. There you have it! Investing in oil and natural gas minerals and royalties is not so scary. Minerals and royalties have long been considered a solid investment to help hedge against inflation and now is no different. Once you understand how the industry works and like all investments, are willing to accept the risks involved, then the process of investing in this enterprising venture can be exciting, rewarding, and something to offer your kids and grandkids for their futures. How to Buy Mineral Rights If you’re interested in taking the next steps to investing, here are two things you can do to get started: 1. Talk to a professional Landman or Mineral Manager about your plans. If you know the areas you want to invest in, find one who specializes in those areas of interest (AOI). Venergy specializes in the Eagle Ford shale and the Austin Chalk in southern Texas, the Permian basin of west Texas and southeast New Mexico as well as the Haynesville shale in eastern Texas and western Louisiana. 2. Read up and get educated on the oil and gas industry. Whether you are a beginner or a seasoned investor, information is always changing and it benefits you greatly to stay abreast of market changes. We have a number of helpful blogs and infographics to help you get going. And don't forget to visit our extensive FAQ page! If you would like to start really simple and just have a conversation, we invite you to schedule a time to set up a virtual meeting or fill out the form below and we will get in touch with you. Thanks for reading the VOG Blog!
- Oil & Gas Minerals and Royalty | Venergy Momentum Oil & Gas | TX
Venergy Momentum Oil & Gas Acquisition and Divestiture Mineral and Royalty Management Consulting A private and progressive oil and gas consulting firm serving land, mineral, royalty and non-op working interest owners within the South Texas Eagle Ford Shale & Austin Chalk, Haynesville Shale, West Texas & New Mexico Permian Basin. Learn about our Specialty Services How much do mineral rights sell for? A lot of factors go into this answer. They can be worth a lot more than you think or they can be a lot less. Getting a professional mineral appraisal is the best way to find out. Without one, you could miss out on potential opportunities, make unnecessary mistakes when negotiating a lease or when selling some or all of your minerals and/or royalties. Request a Mineral Appraisal Selling your mineral rights Do you know what stage of production your interests are in? It matters. Find out. Read More Read More Top Articles Mineral value Why is it so hard for buyers and sellers to agree on a price? Read more Read More Read More Inherited mineral rights Find out what you own and what you need to do next. Right here Read More Read More Visit our FAQ's Results Are the Only Thing That Matter. We've been bravely producing results through the highs and lows of the industry for over the past decade and have been involved in over $250MM in oil and gas asset transactions. Venergy Momentum is dedicated to closing deals for mineral and royalty owners that can change their lives. We know who to call, what to look for and have the tenacity and know-how to get results. 5.0 Star Google Reviews "Kyle and Venergy are outstanding. Rare to see a combination of technical acumen, knowledge of the industry, and trustworthiness. You are in good hands with the Venergy team." -Daniel Anderson "Imagine my concern making "cold calls" to try to help find someone trustworthy to help me with inheritance issues. I discovered Kyle Venema and Venergy Momentum Oil & Gas. Kyle shared his first-rate professional expertise and deep knowledge base as he walked me through a process that led to the top selling-prices and closure. Not skipping a beat, Kyle's diligence leaves nothing to chance or undone. Every step of the way, I knew I could count on professional service, expertise, and integrity. Whatever your oil and gas concern is, reach out to Venergy Momentum Oil & Gas." -Soller Piano "Kyle Venema and his company, Venergy, are top notch. He is extremely professional, thorough and data-driven. I enjoy working with them and always know that no stone will be unturned." -Luke West "Kyle has been an absolute pleasure to work with over the years. He has an exceptional work ethic and deep knowledge of the industry. His kind, welcoming attitude has always set me at ease, which has also lead to a friendship outside of just business. A real class act!" -Paden Penny "We have worked with Kyle in a variety of settings over the years and he always displays professionalism as well as high ethical standards. He communicates extremely well and he looks at all sides of issues as he has experience working for oil and gas companies as well as landowners. We can always trust the quality and accuracy of his work and there is never a doubt of his ability to meet deadlines and accomplish his goals." -Jennifer Calloway "I have worked with Kyle for over 10 years in the Oil and Gas Industry. He works hard for his clients, and is always very responsive to calls and emails. He is the first person I call for advice on an acquisition or sale of a lease or minerals." -BM Comer "I have known Kyle on business and friendship level for over 20 yrs. Not only do I consider him a trustworthy, honest person, he does also have the right instinct/nose for great deals. I consider him an expert in his field and have reached our to him many times over the years for business advice." -Piran Ghods "Venergy Momentum Oil & Gas has been a wonderful partner to work with in the area of helping us to identify and claim our oil & gas assets. Kyle Venema is a knowledgeable, professional resource in the oil & gas field who has provided us with thoughtful, courteous assistance in navigating the legal process of dissolving a partnership and transferring our assets. Kyle provided honest, straight forward advice and assistance in dealing with a variety of participants in the oil & gas industry, such as counties, taxing authorities and producers. If you are in need of advice and/or assistance regarding issues in the oil & gas industry, I highly recommend contacting Kyle Venema at Venergy Momentum Oil & Gas LLC." -Mike Goodwin "We found Kyle Venema on our Next Door App feed. He is just what we needed to help create legal documents that we filed in many counties. Kyle has been so helpful. To speak more to this, here are more characteristics that he possess: Knowledgeable with oil and gas legalities and can easily put in layman’s terms. Helped us avoid large attorneys fees. His fees are very reasonable. Listens to clients to understand their needs. He is professional and helped us in a timely manner. He is a great researcher and communicator. He is much more than a land man." -Margaret Goodwin "WE have happily worked with Kyle on a couple of projects since 2021. His prompt advice on the land and the titles served a critical part of the due diligence study in the oil and gas asset acquisition. Most important of all, he always put client's interest in the first place. Highly recommended!" -WE Resources Read our Testimonials
- Frequently Asked Questions | Venergy Momentum Oil & Gas
Frequently Asked Questions Top FAQ's Owner FAQ's Mineral rights value Mineral rights & land ownership Mineral rights appraisal Transferring (conveying) mineral rights Inheriting mineral rights Reserving & severing mineral rights Selling mineral rights Leasing mineral rights Buying mineral rights Claiming unclaimed oil, gas, and mineral royalties General FAQ's Mineral rights explained Net mineral acre & net royalty acre Mineral deed & transfer forms Mineral rights title Recording mineral rights Mineral rights taxes Mineral rights & 1031 Exchange 1 What are mineral rights? Mineral rights, or mineral interests, are the rights to search for, develop, and produce minerals and hydrocarbons such as oil and gas from land. Mineral rights are sometimes confused with royalty rights and differ greatly from surface and executive rights. Learn about all of them here. 2 What does it mean if you have mineral rights? Having mineral rights means having the right to search for, develop, and produce oil and gas and other minerals from the interests you own. Owning mineral interests can also entitle the owner to receive monthly royalties from oil and gas drilling activities (i.e. production). 3 Why are mineral rights important? Owning mineral rights allows you the potential to receive significant monetary payouts. Owning the Executive Rights of your interests is an added bonus because it gives the mineral owner the right to negotiate an oil, gas, and mineral lease. 4 Are mineral rights tangible or intangible? Mineral rights are both tangible and intangible! They are intangible in that you can't physically touch minerals since they are only a contractual component where the mineral owner gives the right to an Operator to access the minerals to create a tangible product (i.e. oil and gas). This, in turn, creates another tangible product in the form of money as monthly royalties . 5 How do mineral rights work? Mineral rights are considered real estate - this is the best way to try to understand how they work initially. Like surface property rights, mineral rights are acquired, transferred, gifted, inherited , leased, or sold on a contractual basis to a relative, heir, a mineral buying company, an oil and gas Operator, or anyone else willing to purchase them. They can even be exchanged for other like property for significant tax deferrals. Mineral rights are different than surface rights, royalty rights, and working interest. When a mineral owner's interests begin to produce oil and gas, the monthly royalties they receive are subject to taxation . Non-producing minerals do not incur taxes. 6 Do mineral rights expire? Mineral rights do not expire unless there is a term attached to them. Term mineral interests are given to someone for a specific time period (i.e. 5, 10, 20 years) or "for as long as they are producing" . After the term period expires, they can be reverted back to their original owner (or to anyone else). Typically, if they are producing they will remain with the current owner, their heirs, and/or assignee unless it is specifically stated otherwise in the document at the time of conveyance. 7 Where do mineral rights start? It varies from state to state but mineral rights pertaining to hydrocarbons can potentially start within 6 inches from the surface. There are other kinds of minerals but they don't count as hydrocarbons. Mineral Rights Explained Schedule a consultation Mineral Rights Value 1 Are mineral rights worth anything? Maybe, maybe not. There are times when you want to sell your minerals and when you should hold them. Speaking to a seasoned oil and gas professional that understands minerals and royalties and that is also familiar with the area in which your interests reside is a great place to start asking questions to see whether selling or holding is the right option for your particular situation. 2 How are mineral rights valued? The value of mineral rights varies due to a lot of factors. In addition to economic, political, geopolitical events, pay zones, Operator activity, etc. mineral values also fluctuate based on what stage of production they are in. Sometimes they may be worth a lot or they might need to be held onto for a while longer. Contact a professional to decide if a mineral appraisal is right for you . 3 Is there a mineral rights value calculator? Yes, in the form of a Certified Petroleum or Reservoir Engineer. The only true and legitimate way to find out the true mineral rights value of your assets is to: a) have an appraisal done by a licensed CPE, or b) see what mineral buyers are willing to pay. As we always say, "Something is only worth what someone is willing to pay." It is not recommended to take your assets out to market on your own and without buyer representation so contact a professional to help. 4 What is the average price per acre for mineral rights? Pick a number between 0 and 50,000, get a dart board, and throw a dart. Average prices per acre vary significantly depending on many, many factors, such as the quality and productivity of the pay zones and rock (for example, the Permian Basin has multiple pay zones making it highly attractive), the price of oil and gas, supply/demand, stages of development, and so much more. 5 Is there a mineral rights value rule of thumb? Yes, but most of them out there are not even close to being accurate. Your best bet is to do some research or get a mineral appraisal done. There are so many variables that go into calculating mineral rights value with the advancements in fracking technology that production results can vary substantially making those old rules of thumb unworthy of consideration. 6 How much are mineral rights worth in Texas? Depends on where they are, what's underneath the ground, buyer desirability and metrics, production potential, etc. Values will also vary based on the shale the interests are located in. For example, the Permian Basin is unique in that it contains several rock strata's (Spraberry, Wolfcamp, Wolfcamp A-D, etc.) that have been able to create large quantities of oil and gas. Talk to a trusted oil and gas professional that knows the area your interests are located in. Mineral Rights & Land Ownership 1 Do I own mineral rights on my land? The best way to find out if you own mineral rights on your land is to read your conveyance documents or deed. Look for language like, "Subject to prior mineral and royalty reservations...." . If there is "subject to" language, engage an oil and gas Landman to help you run title to find out exactly what you own. If you are receiving monthly royalties then you own some of the royalty rights and quite possibly the mineral rights. (Understand the difference between mineral rights and royalty rights.) If someone is contacting you about leasing, then you own mineral rights. This is also a sign you probably own the royalty rights as well. 2 Who owns mineral rights on my property? To find out who owns the mineral and/or royalty rights on your property, a title search , or running title , will be necessary. Be aware most US states are mineral dominant meaning the surface owner is subject to the rights of the mineral owner. In plain terms, this means the subsurface mineral owner can use the surface owner's land to extract the minerals beneath it. Owning the mineral estate carries with it superior attributes, or rights, over the surface estate which is why it is known as the “dominant estate”. 3 Are mineral rights considered real estate? Yes! Mineral rights, as well as royalty rights, are considered real estate and can be treated as such. A highly popular and smart way to defer taxes when buying and selling minerals and royalties is to consider a 1031 Exchange . 4 Can you own mineral rights without owning the land? Yes, you can own the mineral rights, as well as royalty rights, without owning the surface of the land. This is called a severed mineral interest. Since they are severed, they are treated as two separate pieces of property where the severed mineral rights can be transferred by themselves. 5 Are mineral rights real or personal property? Mineral rights are real property. Real property refers to land and anything growing on, and attached to the land, including buildings. They differ from personal property in that personal property is property that is not attached to the land (i.e. vehicles, household items, valuables, and clothing). 6 What do I need to know about mineral rights when buying land? Before making a land purchase, especially rural property, you need to know if the mineral rights, as well as any royalty rights, are part of the sale because if you don't own them, then someone else does. Be aware the mineral owner can sign an oil and gas lease without the surface owner's knowledge giving an Operator the right to put a well on the surface owner's property. This is especially true for Texas and many other states because it is a mineral dominant state meaning a surface owner cannot keep a mineral owner from producing their own minerals. Read more about real estate and mineral rights . More questions? We can help. Inheriting Mineral Rights 1 Can mineral rights be inherited or willed? Yes, mineral rights can be inherited or willed to other individuals or entities. An oil and gas attorney can help you with the paperwork. When passing down, or conveying, mineral and/or royalty rights to heirs, there are a few things you must know. 2 I just found out that I own mineral rights but I have no idea what they are or what to do next. The first thing you should do is start to learn the basics about minerals and royalties. The second thing you should do is contact a reputable and trustworthy Landman that is familiar with the area your assets are located in and offers mineral appraisal services. Venergy Momentum offers complimentary consultations and mineral appraisal services for all US properties and is 5-star Google rated with an A+ Better Business Bureau rating. 3 I've inherited some mineral rights, what do I need to do? Whether you knew you inherited mineral and/or royalty rights (or were surprised to find out you did!), you need to know exactly what you own, where the interests are located, and what the mineral and royalty interest value is. If you have inherited minerals and/or royalties, they are subject to being taxed as ordinary income. You could save, or lose, thousands if you don't know their value at the time of inheritance. Speaking to an oil and gas professional that does mineral appraisals is the first step to take after inheriting minerals and royalties! Selling Mineral Rights 1 Should I keep my mineral rights? If they are worth a lot and you need the money, then no. They are worth selling to improve your life situation (i.e. get out of debt, pay for a new house, college, start a business, etc.). Remember, these are assets and should be treated as such. Just because they've been in the family for generations doesn't mean they should be kept for generations to come while your life situation is causing you to struggle. Would your ancestors have wanted that? The best news is that you don't have to sell all of your mineral rights! You can easily keep some and sell some to give you the boost you need. These are the times when it is advantageous to sell. Conversely, if you don't need the money and there is nothing going in the areas they are located, then don't do anything. Don't sell your minerals when they are not worth anything! 2 Why should I sell my mineral rights? You should consider selling your mineral rights to meet your life situation and needs including, financial (i.e. build your dream home, pay off debt, or pay for college), entrepreneurial needs (i.e. real estate, 1031 Exchange, open a business), life transitions (i.e. trust and will planning, forced separate of estate or divorce) , charitable (sell or donate them to your favorite organization or religious institution), if you simply don't want to deal with the paperwork associated with owning them, or for any reason at all! 3 When should you sell mineral rights? You should sell mineral rights when they are worth a lot of money! Unfortunately, many mineral owners believe all minerals are valuable, but that is not the case. Aside from the times when you should sell your minerals, other times to sell are when you want to take the lump sum payout and move it into another investment opportunity, pay down debt, pay for college, open a business, etc. Newly inherited owners may have been told the old adage, "Never sell your minerals..." but that is no longer good advice. If you need or want the money because of personal or family situations and it is the right thing to do for you, then look into selling your minerals. Best news yet? You don't have to sell all of them! You can keep a percentage and sell some. Find out more. 4 Keeping mineral rights when selling property. What do I need to know? If you are a surface and mineral owner and want to keep your mineral rights when selling your surface property, you can reserve or convey your mineral rights interest (as a percentage or fraction) in a conveyance document such as a Deed or Assignment . Any rights that you do not reserve (i.e. Mineral, Royalty, and Executive Rights) will automatically pass onto the next owner. As long as you ensure everything is defined in the conveyance, all should be fine. A really good Landman or oil and gas attorney can help you with drafting conveyance documents. 5 What is the going rate for mineral rights? See mineral rights value. 6 Where to sell mineral rights? Selling mineral rights can become a frustrating process if you do not know what to expect or don't know where to start. The best place to start is:1) Work with a professional who knows the ins and outs of buying and selling minerals and royalties and has a trusted buyer network. Some brokers fit this category, some do not, so do your research carefully . The "decent" option is: 2) Work with a mineral rights auction house to see what mineral buyers will offer you. The least recommended option is: 3) Go at it alone, but only go this route if you have adequate knowledge of the industry, have a trusted buyer network, and know exactly what your property is worth (not what you think it's worth). Just getting started? Read this article. 7 What is a mineral rights auction? A mineral rights auction is an online auction where sellers can advertise and promote their assets to buyers. Just like other auctions, buyers have a predetermined amount of time (typically 30 days) to put in their bid before the bid window closes. Once the window is closed and an offer is accepted, the auction house will broker the transaction and take a percentage of the sale (anywhere from 3-10%). Be aware that properties don't always go to the highest bidder for various reasons at auctions. If you choose to go this route, work with an auction house that only allows trusted and experienced buyers to be a part of their network. 8 What is a mineral rights Purchase and Sale Agreement (PSA)? A PSA is a legally binding agreement that defines the terms and governs the buy/sell transaction where the buyer agrees to buy at certain terms and a seller agrees to sell at certain terms. There are many different forms of PSA's; some are longer than others, all offer different protections. As a mineral owner, you want to make sure you have a legitimate PSA that outlines all of the terms. An oil and gas attorney is necessary to review any and all acceptable offers to purchase. A PSA can also be known as Mineral Purchase Agreement or Royalty Purchase Agreement. Confused? Let us help. Mineral Rights Appraisal 1 Do I need a mineral appraisal? If you inherited minerals, absolutely yes! Here's why. If you have owned your minerals for quite some time, it's a good idea to talk to an oil and gas company who does appraisals to see if one is right for you. Values change over time so they may be worth more (or less) than when you first acquired them. There are two types of mineral appraisals - current and retrospective. Learn more about appraisals. 2 How do you come up with a mineral price? Determining the value of mineral rights is done by a Certified Professional Petroleum or Reservoir Engineer requiring large amounts of information to be collected, calculated, and analyzed including, but not limited to, past and recent public sales and production data, past and future potential development activity, the price of oil and/or natural gas, etc. 3 What information do you need to create an appraisal? It depends on the type of appraisal - current or retrospective; however, both types need the following fundamental information to find out exactly what you own and what your interest ownership is which can be found through: 1) a copy of the lease, 2) division orders, and 3) revenue statements (#2 and #3 will only be available if the minerals are producing). Supplying these documents can be the most troublesome part of the process if owners don't have them. For example, if the owner does not have a copy of the lease, a title search will need to be done to try and find a copy of their lease royalty rate (if it's recorded in the county public records and not just a Memorandum of Lease), acreage ownership details, etc. adding more time (and money) to the mineral appraisal costs. It's best to gather as much documentation as you can before speaking to an oil and gas professional. 4 How can I use the information from my appraisal? Most importantly, w ith the mineral values from your oil and gas appraisal, you can minimize your tax implications, use it for estate planning if you want to put them into a trust, and in some cases, a banking institution could accept the appraisal as collateral if you wanted to borrow against it. Additionally, the cost of the appraisal is also a tax deduction, or write off. 5 How much does a mineral appraisal cost? Generating a mineral appraisal can be a very labor intensive process. Many factors that affect the cost of a mineral appraisal include, but are not limited to, the number of properties or assets you have, the number of wells affecting your acreage, how far back we have to research, etc. so they can range anywhere from $6,000-$15,000 or more. Find out how much your appraisal could be. 6 How long does it take to get a mineral appraisal done? Venergy can provide a comprehensive mineral appraisal done by our Certified Petroleum Engineer within 3-4 weeks. 1 What does mineral rights convey mean? A mineral rights conveyance is the legal process of transferring certain property or interests from one person to another, or Grantor to Grantee. During the conveyance of the property, oftentimes the person transferring the property, the Grantor, will reserve mineral rights and/or royalty rights, attached to the property being conveyed. 2 How are mineral rights transferred? Transferring mineral rights is the same thing as a conveyance whereby the Grantor, the person conveying the rights, draws up a deed that explains what is being sold or transferred to the Grantee, the person receiving the interests. It should also explain what is being reserved, or withheld, from the sale. Transferring (Conveying) Mineral Rights Reserving & Severing Mineral Rights 1 What does it mean if my mineral rights were severed? If you own the surface rights to a piece of land it does not necessarily mean you own the minerals or royalties below that land. In areas of the US where drilling or mining occurs, the ownership between the surface of the land and the minerals beneath it are often different due to the minerals and/or royalties being severed from the surface estate. As a surface rights owner, this means you have no rights to the minerals, and quite possibly the royalty rights, that might be produced from beneath your land. Only the subsurface mineral owner has the right to sign and negotiate a lease to drill a well, provided that mineral owner also owns the Executive Rights. 2 What does mineral rights reserved mean? Reserving mineral rights occurs when a mineral owner reserves, through a royalty percentage or fraction (i.e. 12.5% or 1/8, or any other % or fraction ), what is produced and sold from the land for themselves. "Reserving" mineral and/or royalty rights would need to take place at the time of "conveying", "transferring", or "leasing", and it occurs either when a person conveys, transfers, or sells minerals and/or royalties to another person or entity, or when an oil and gas lease is signed between an oil and gas company, the Lessee, and the mineral owner, the Lessor, for a specific time frame, or “term”. 3 Can mineral rights be reserved by the Seller? Absolutely. Sellers can, and oftentimes do, reserve for themselves any amount of the mineral or royalty rights they wish when transferring or selling. It is expressed as a percentage or fraction, typically anywhere between 12.5%-50%-75% of their rights. Mineral rights must be reserved at the time of conveyance. If they are not expressly reserved, then all rights will automatically be passed through to the next owner. Read more about this important topic. Schedule a consultation Buying Mineral Rights 1 Why should I buy mineral rights? Buying minerals and royalties could be a great investment as long as you know how to manage them. They can be sold and/or purchased via a 1031 Exchange to defer taxes from the purchase or sale of other real property. Once you buy them you own them in perpetuity until you decide to do something else with them. 2 Who buys mineral rights? There are many individuals, institutions, and companies that buy mineral rights, you just need to know which ones are legitimate buyers. If you are new to the industry, you don't want to get caught up with any "get rich quick" schemes or work with anyone who promises you the highest offers without verified client reviews and testimonials . 3 When should you buy mineral rights? You should NOT buy mineral rights at the same time when it is best to sell them. You typically want to buy minerals and royalties when prices are down and there is not much development happening. Selling mineral rights at these times is when they are most valuable due to their location and stage of production. There are other factors that come into play when buying and selling minerals. Watch this short video. 4 Where can I buy mineral rights? Mineral rights can be bought from mineral rights auctions or done the old school way by contacting a good Landman who knows the area, can help you research, and make lots of phone calls. Just like any investor, buyers need to know what they are doing and getting into before talking to companies that buy mineral rights. 5 What is the going rate for mineral rights? See mineral rights value. Claim Unclaimed Oil, Gas, and Mineral Royalties 1 I got a letter in the mail wanting to buy my minerals and royalties that I didn't know I owned. What's going on? If you are receiving letters in the mail or are getting phone calls from parties interested in buying your minerals and/or royalties, then somewhere down the line you had a family member that owned mineral rights and they died without a will which subsequently led to you inheriting them! First, don't let them rush you into anything. You have time to wrap your head around things. The first thing you need to do is contact a professional Landman to help you find out what you own, where it is located, and what the value might be, and whether or not they might be producing which would lead to having money sitting and accruing in what is called a suspense account. Next step is to get a mineral appraisal which can help get a lot of these questions answered for you. It is also absolutely necessary to have them appraised at the time of inheritance because inherited mineral rights are taxable. Mineral Rights Title 1 What is a mineral rights title search? A mineral rights title search is also known as "running title" and is a mandatory process done by an oil and gas professionals when buying and selling minerals and royalties. Running title is an act of performing due diligence to discover and confirm mineral ownership by researching chains of title (or in lay terms, who owned what, where and when and who did it get passed down, or transferred to). To research recent history, running title can be partially done online although in most cases, a trip to the county courthouse is required to research earlier chains of title. There are a lot of aspects of running title that cannot be completed online and need to be completed by a professional Landman. 2 Where can I do a mineral rights title search? A mineral rights title search can be done online through the county courthouse website or at the county courthouse. 3 Why would a mineral rights title search be necessary or beneficial? Performing a mineral rights title search is necessary in order for the mineral owner to know exactly what they own. If you don't own 100% of them, it's also beneficial to find out who owns the rest in the event you might want to purchase their rights. See What do I need to know about mineral rights when buying land? Need custom answers? Contact us. Leasing Mineral Rights 1 What is a mineral rights lease? In Texas, an oil and gas lease is a conveyance by the mineral owner, the Lessor, to the oil and gas company, the Lessee, of the mineral estate for a specific time frame, or “term”, and thereby the oil company grants to the mineral owner, or the mineral owner reserves for themselves, through a specific royalty rate or percentage, from what is produced and sold from the land. 2 How do I find out mineral rights lease rates? To get started on finding mineral rights lease rates, get on public forums and ask questions. It's also a great idea to call people that own neighboring acreage and see what information they can provide to you. Unfortunately, there is not a specific website or database that reveals lease rates for an area since values can fluctuate rapidly and significantly from one property and from one Operator to the next. Your best bet is to find a trusted, professional Landman who knows the area well that can give you guidance. Read our tips when it comes to negotiating with mineral buying companies. 3 What is an average oil lease price per acre? The average oil lease price per acre varies, and can vary quite substantially. In recent years, it has been anywhere from $50 per acre to $20,000 per acre or more. Oil lease price per acre depends on many factors including location, Operator desirability, geologic production potential, and so much more. Mineral Rights Taxes 1 How are mineral rights taxed? If you are receiving monthly royalties that means your minerals are "producing", meaning they're going to be taxed as ordinary income when you file a tax return, and just like property taxes, at the county level as well. If your minerals are not producing then no taxes will apply since you are not receiving any monthly revenue. However, note that if a mineral owner sells his mineral rights, they will be taxed on the sale of the minerals. 2 Are inherited mineral rights taxable? Yes! Inherited mineral rights are subject to capital gains taxes when you decide to sell your inherited mineral rights. It's imperative to receive a baseline value of inherited mineral rights with a mineral appraisal. The federal long-term capital gains tax is 15-20%, however some states have their own capital gains tax rate in addition to the federal capital gains tax. Take this simple example: You inherited minerals and royalties at some point in the past and let’s say they were worth $500k at the time of inheritance. A few years later, you sell them for $1MM. If you didn’t get a mineral and/or royalty appraisal at the time of inheritance, or a Retrospective Mineral and/or Royalty Appraisal dated back to the time of inheritance, prior to selling those interests so you would be taxed the 15-20% capital gains tax on the full $1MM. Have no fear though, you can still have a Retrospective Mineral and/or Royalty Appraisal completed after the rights are sold. Talk to us about how this works . Phew! If you would have done an oil and gas appraisal, and as long as you owned the assets for longer than one year (long-term capital gains), you would only be liable for the 15-20% capital gains taxes on the $500k profit ($75k @ 15%) instead of the full $1mm ($150k @ 15%). 3 Where to report mineral rights income? Mineral rights income is reported under Royalties when filing taxes. The oil and gas Operator will send the mineral owner a 1099-MISC form with this amount. as well as send a copy to the IRS and to your state taxing authority (if applicable). Schedule a consultation Mineral Deed & Transfer Forms 1 What is a mineral rights deed? A mineral rights deed is a legally binding document a mineral owner uses to convey a mineral interest, in the form of a percentage or fraction, to someone else. A mineral rights deed can also be used to sever minerals from the surface estate. The Grantor may also include in the deed their retained rights (i.e. Surface rights, Executive rights). It is different than a Royalty Deed. 2 What is a mineral rights transfer form? A mineral rights transfer form is a document used to convey , or transfer, mineral and/or royalty rights to another person or entity. Deeds, general warranty deeds and assignments are types of mineral transfer forms. 3 What is a royalty deed? A Royalty Deed transfers all, or a a portion, of the royalty rights from oil or gas production from one person or entity to another. It does not transfer mineral rights; only the right to receive royalties if/when the minerals are produced. 4 What is a quit claim deed? Does it transfer mineral rights? A Quit Claim Deed is a type of deed a Grantor, the seller, uses to transfer any and all rights, whatever owned by the Grantor to a Grantee, the buyer, without any kind of warranty, transfers any and all rights "as is". Unlike a general warranty deed which offers the most protection for a Grantee, a Quit Claim Deed provides the least amount of protection. A Quit Claim Deed states what the Grantee is buying with the understanding that there is no verification, promise, or guarantee through covenants of title, that the Grantor owns what they say they own. Quit Claim Deeds are typically used for low-risk transactions and between family members. It is called a Quit Claim Deed because the Grantor "quits", or releases, the rights they have to the property described to the Grantee. Quit Claim Deeds should only be used with trusted and verified Grantors. They can also simply be used to clear up any title issues such as misspellings or documents missing a signature. Recording Mineral Rights 1 Are mineral rights public record? Yes, with enough searching you can find out deeds of record. If the minerals are producing, the county appraisal district will be able to show who owns the mineral rights in that area but full title must be ran to find out the exact ownership. Be aware that counties operate and record information differently. 2 Is there a mineral rights database? There is not a public mineral rights database per se, but there are paid subscriptions available that pull in data from multiple sources to give you an idea of what someone owns. A popular (yet very expensive) database that provides this is Drilling Info. Net Mineral Acre & Net Royalty Acre 1 What is a mineral acre? Referred to as a Net Mineral Acre, or NMA, it is a representation of the net acreage owned by a mineral owner from under the gross acres of a particular parcel or tract of land. For example: If the gross acres of a tract of land are 40 gross acres and you are stated to own half of the minerals in that particular tract of land, then your net mineral acres owned are equal to 20 net mineral acres. 2 What is a net royalty acre? A Net Royalty Acre, or NRA, is similar but different to that of a Net Mineral Acre. A Net Royalty Acre is a net mineral acre that is subject to an oil, gas, and mineral lease with a certain royalty percentage granted and provided for within that lease. It becomes a NRA once a mineral interest has been leased, otherwise it remains a net mineral acre (NMA). Net royalty acre is the most common term used today for mineral buyers so it is very important to understand how to calculate net royalty acres. Let us help. Mineral Rights & 1031 Exchange 1 If I own mineral rights can I do a 1031 Exchange? Absolutely! In fact, it's a smart move as it can be a way to defer your taxes. A 1031 Exchange allows the owner to sell a property and purchase another “like-kind” property of equal or greater value using the proceeds from the initial sale without paying taxes immediately. These taxes are deferred until the future sale of the replacement property. Mineral and royalty interests qualify for a Section 1031 Exchange opportunity as they are considered a “like-kind” exchange. 2 What is the process of a 1031 Exchange? How long does it take? Before a 1031 Exchange is initiated, the Exchangor is responsible for marketing his property, securing a buyer and executing a Purchase and Sale Agreement (PSA). The Exchangor’s obligation (the PSA) to sell the Relinquished property is then assigned to a1031 Exchange Intermediary. The 1031 Intermediary transfers the Relinquished property to the buyer. The 1031 Intermediary then receives the money from the buyer for the Relinquished property. Within 45 days of the Relinquished property transfer, the Exchangor must identify a Replacement property to acquire. The Exchangor negotiates the purchase terms for the Replacement property with the seller and executes a PSA. The Exchangor’s obligation (the PSA) to buy the Replacement property is then assigned, or transferred, to the 1031 Intermediary. The assignment allows the 1031 Exchange Intermediary to use the exchange proceeds to purchase the Replacement property. The 1031 Intermediary is mandated by IRC 1031 to transfer the Replacement property to the Exchangor within 180 days of the Relinquished property transfer. More Questions? - Email us - Schedule a complimentary consultation - Get started on your Mineral Appraisal - Fill out the form below and we will contact you Up
- Value of mineral rights | Venergy Momentum Oil & Gas
Valuing Mineral Rights Whether you have owned your minerals and royalties for some time or they are newly acquired through inheritance, it's important to know how much they are worth. V alues change over time so they may not be worth as much as they were before, or they could be worth more now. It's a smart move to get an appraisal if it has been a while (or if you've never had one) and if you are considering divesting some, or all, of your interests. Start My Mineral Appraisal How do mineral rights work? "When is a good time to sell?" Political, geopolitical, and black swan global events are shifting the energy landscape daily. Along with these events, the price of oil and gas, area and Operator activity, and the stage of production your interests are in are just a few of the factors we take into account when determining the best time to sell minerals. "My minerals have been in my family for generations. I'm hesitant." You don't have to sell all of your interests! There are a number of ways to structure the sale so you can still retain ownership. Family situations change. It's time to consider what's needed in the present and take action. "How are mineral rights royalties taxed?" If your minerals are producing and you are receiving monthly royalties they are going to be taxed as ordinary income and just like property taxes, on the county level, as well. If a mineral owners sells their minerals, they will also pay taxes on the sale. Inherited mineral rights are also taxable. Read more FAQ's What are some mistakes people make when determining the value of their mineral rights? The most common and painful mistakes we see from owners is to have unreasonable dollar amounts for their interests. Just because your neighbor got a large sum for their interests doesn't mean you will get the same. Timing is also a big factor. If you leased your property for sky high rates back in 2011, well....that was 2011. Lines get drawn, erased, and re-drawn, and the price of oil and gas changes daily along with the global landscape. Lack of industry knowledge, a poor network, and unrealistic expectations are an owner's recipe for disaster. It's important to work with an oil and gas expert to get you the results you deserve. START WITH US We'll gather specifics on your personal situation. We meet you where you are at in your life right now and get clear on where you want to be. GET REALISTIC WITH US With the information we have collected on your asset, Operator activity, industry movements, current buyer rates for your interest area, etc. we will provide legitimate and realistic numbers you can believe in. TRUST US We know the industry and the process because we've been through almost every scenario. We will handle the phone calls, emails, the letters, and the back and forth so you don't have to. Schedule a Consultation