Published on:

Should I Sell My Minerals?

I have often received calls from clients who receive unsolicited offers to buy their minerals. In the past, mineral owners have generally ignored these offers, reminded of their grandmother’s admonition to “never sell your minerals.”

That has changed. The buying and selling of minerals has now become common. Investment monies have flowed into funds that acquire mineral interests. Companies have been founded with that objective. Some of the largest mineral portfolios have been assembled by purchase over the last decade. Black Stone Minerals, for example, has evolved from a family-owned East Texas lumber company into one of the largest mineral owners in the country. Energynet, founded in 1999, conducts online auctions of minerals and now handles more than $1 billion per year in transactions.

Investment in minerals, especially in Texas, has several advantages.  Holding costs for minerals are minimal. Taxes are assessed only on producing minerals.  Severed non-producing minerals cannot be adversely possessed.  No liability risks attach to mineral and royalty interests.

In the new world of unconventional resource plays, risks of acquiring minerals are less, because conventional geology plays much less of a role. The delineation of resource plays can be more accurately predicted. Returns on future wells in a given area can be predicted with much more certainty.

These factors, together with the large amounts of investment money looking for a place to invest, the low cost of borrowing, and the heights of the conventional equity markets, have driven up prices for minerals.

The fractionation of mineral ownership as estates are divided among heirs has also meant that mineral owners have less  sentimental attachment to their inherited minerals. Mineral buyers serve the purpose of re-aggregating mineral ownership and thereby making leasing and exploitation of minerals less costly to exploration companies.

Mineral owners may have many good reasons to want to sell all or part of their interests. They may need to diversify their assets, to pay for a college education, to liquidate assets for retirement, to pay off indebtedness. Many believe that mineral values are at their height and will decline as the world moves from dependence on hydrocarbons. Some want to divest because they oppose industries that contribute to global warming.

As a result, in the last few years our firm has represented many mineral owners who have elected to sell all or part of their minerals. One of my partners, Nicholas Miller, has developed a specialty helping mineral owners to make decisions about whether, when and how to sell. He has developed relationships with mineral buyers and can walk  sellers through the process and help them obtain the best price, either on a fee or commission basis.

Mineral owners must first investigate the value of their minerals. What is the leasing activity in the area? Are new wells being drilled? How successful are they? How do you value a producing mineral interest?

How do you close a mineral sale? Is a contract necessary? Does the seller need to warrant title? How does the seller know for sure what undivided interest he/she owns? Does the deed convey only the interests intended to be sold?

Sale of a mineral interest, like any valuable asset, requires due diligence and advice of experts. Seller beware.

Contact Information