While there are quite a few no-no’s to abide by when it comes to selling minerals and royalties, the biggest one that comes to my mind occurs after an interest owner calls me wanting to know if the offers they have been receiving are worth accepting. While I can’t tell them right away without doing research if the offer is legit, I can tell after a few minutes of speaking with them about their assets if they are knowledgeable about what they own.

For those who have inherited mineral rights, and didn’t know they inherited them until they started to receive phone calls and letters from buyers wanting to purchase them, they get a free pass for not knowing anything about them.

However, the long-term interest owners who don’t know how much they own, where they are, or how to manage them properly, are doing themselves a disservice and could be missing out on potential opportunities (or may have already missed out) simply because they did not take the time to learn about them.

Failure to understand your assets, like staying abreast of what’s going on in the areas they are located, as well as local, national, and geopolitical news that could affect your interests, is paramount to making informed decisions as to what to do with them in the short and long-term.

Never Sell Your Minerals…

Some interest owners think they should retain ownership of their minerals and royalties just because that’s the rumor that has been passed down from the generations before them.

I believe this adage left out a few important words, which I share with all of my private clients:

Never sell your minerals…when they aren’t worth anything!

So, How Much Are My Mineral Rights Worth?

Interest owners always want to know their mineral rights value. We cover this topic in many detailed blogs and videos including:

• How do I know if the offers I’m receiving are good?
• Did you get an offer to buy your minerals that blew your socks off? Here’s why…
• Do I really need an appraisal?

How minerals and royalties are valued depends on many, many factors. Simply looking at a few revenue statements, or accepting the property values at your county tax office are definitely the wrong ways to determine what your minerals are worth.

Testing the buyer market to see how much your interests are worth is the #1 way to find out your selling mineral rights value. Something is only worth what someone is willing to pay for it and most buyers will value interests very differently. Value is certainly in the eye of the beholder when it comes to a mineral rights sale.

Learn more about this in our blog, Testing the Buyer Market to See How Much Your Minerals are Worth—Does it Work? 

Neglectful Ownership Woes

Just because you are collecting monthly royalty checks doesn’t mean you are gaining the full advantages of your assets. Failure to investigate alternative roads to managing your minerals and royalties could be costing you more money in the long run spent on paying taxes for those interests, and you could also be sailing on a sinking ship.

Did you know monthly royalties are taxed as regular income? Did you know you will be required to pay city and school taxes on them, too?

Did you know you could potentially receive more income in a one-time sale of your interests versus collecting small (and declining) royalty checks over years and years? Did you know you could be eligible for a lower capital gains tax rate, depending on when you inherited them?

Minerals and royalties are an ever-declining asset. Those royalty checks will diminish over time as the well(s) start depleting. If you are counting on those royalty checks sustaining you for forever then you might want to look into how they could be better utilized. The reference to a sinking ship above is when the asset has reached its fully developed potential, meaning there are no more wells likely to be drilled on this asset, and the production and revenue will simply just be left to decline, and will certainly do so over time.

Another important thing to note is that some owners decide to collect those initial big royalty checks and then when they start to decrease it is then, and only then, when they will decide to sell and expect a big payout. This kind of thinking is like buying a brand new car, putting 100k miles on it and then expecting to sell it for the price you bought it for. The value won’t be there because you already received it.

Mineral and royalty buyers will not give you the mineral rights value for which you already took; they will deduct it from their offer price. On the other hand, if your assets are newly-producing and/or there is a substantial amount of production left to be extracted, then now would be the time to look into selling your interests. Buyers will also want that flush production and will pay handsomely for it (if you know how, or work with someone that does know, how to manage a mineral rights sale properly).

Tips to Help You Get Started

1. First and foremost, make the time to learn about your assets. Begin with investigating, asking questions, and locating as many documents related to your ownership that you can find. Even if you may think a document doesn’t look important, it might be. Ask relatives for any information they may have as well. Knowledge of your family tree is especially helpful with determining mineral and royalty ownership.
2. Secondly, and almost as important as the first tip, is to seek professional help from a trusted Landman. He/she should have a thorough understanding of buying and selling minerals and royalties, be an expert in the areas your assets are located, and have an extensive network of end buyers. Ask for referrals, read online reviews, and client testimonials on trusted and legit websites. You could also seek an attorney’s advice, but that will come with greater costs, and honestly, attorney’s only really handle the legal paperwork and typically aren’t very knowledgeable when it comes to understanding how to value minerals and royalties.
3. Be open to the possibilities of selling your minerals and royalties. If you are still of the mind that they should be passed down to your heirs, have you considered asking them if they want them? Do they want the responsibility of managing them? Will they be able to afford the taxes? There are many things to consider when it comes to inherited mineral rights.

Making the commitment to be a responsible mineral and royalty owner will definitely serve you well. It can be a complicated subject, as well as an emotional one, when it comes to deciding what to do, or not do, with your assets. It should be evaluated and considered frequently with the support of a trusted professional in the industry.

Don’t make the #1 mistake of failing to understand your asset. You could be leaving a lot of money on the table and the opportunity to get it again are very slim in this business. Schedule a complimentary consultation with us today so we can help you get started on the right track.