Questions about selling portion of mineral rights

Hi. I live in northeast pa, in the heart of the Marcellus shale boom. We have 2 properties. One is producing and its 6.72 acres. So it’s not a lot and things have slowed down in the past year or so. We also have 96.5 acres it is leased but no active wells yet. That lease will run out in 2018. Both are with Chesapeake. When we purchase the bigger parcel of land we had offers to sell mineral rights but we held on to them. We have had one company contact us recently again. The offer seems pretty good almost as much as the original offers. So we contacted another company to see what their offer would be and the offer was really low. We are thinking of selling half of the rights for 150,000. We would use that to pay off the mortgage on that property. Unfortunately with capital gains tax it won’t be quite enough to pay it off. So my question is, is there any chance of qualifying for the like kind exchange? Since we want to use the money to pay off a mortgage? Also, is this a good price for selling mineral rights? And do we lose any of our rights as to the decision making of our land if we sell mineral rights? We operate a flagstone quarry on there and hope to build a house on there too. Thanks.

Hi Wendy,

Last year, I was involved in the evaluation of mineral potential in a township in Bradford County PA for the developer of a complicated real estate development. The mineral potential values (Chesapeake was the area operator) were considerably higher than your message indicated but we all know that mineral value like real estate depends on Location Location, Location.

As you have an economic goal in mind in exchange for mineral rights, good for you. Focus on a fair trade that gets you and the buyer what each wants. Your reservations protecting your long term plans are extremely important to protect so I suggest you consult with a real estate attorney in designing protection of your rights in documenting a deal as well as minimizing your tax obligations. (Mineral Land people are usually not experienced in real estate severance contracts as they are with mineral leases.)

I will be happy to find a lawyer for you through my PA real estate clients and assist in the contract mineral development reservations if needed.

Thanks for the info. Yes we are in Bradford county. If you could recommend someone that would be helpful. Our accountant said we couldn’t do a like kind exchange. But I’m not sure he really knows for sure as I’ve had him be wrong on other things. The company has been trying to get us to sell 75% instead of 50. But we said the offer would have to be higher for us to even think about that because of the taxes. I think we will probably only consider half though.

I'm not familiar with Pennsylvania law, but in the past year I have read on this forum that selling a portion of your minerals (as opposed to 100%) could lead to a problem of another (partial) interest owner later trying to force a partition (or sale of all mineral interest). I would think this would be an extreme circumstance, but if your goal is to sell only a portion, and not later be potentially forced to sell all of your interest (against your will), you may want to consider your legal options to craft a deal where you protect yourself from a possible partition. This is not to discourage you from selling, but to make sure you are aware of partition and take any steps necessary to protect yourself to prevent it from happening to you. Search partition on this forum and you will find more discussions about it.

Will do that. Thanks.