Selling Oil and Gas Royalties Question

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Regarding the Energynet Community: the minerals I have bought have usually just been from individuals who needed to sell them. I have seen minerals offered by trust departments, by individuals, by estates, by oil companies, by royalty firms that "flip" royalty purchases, etc. It is really varied.

Energynet takes generally around 2 months from when you start to when you get cash. That time line is great for some but for others they need it today. Some investors like me can close in 24 hrs. Recently 100 acres sold for $300 per acre on energynet when I could have got them $2500 per acre but I try to extract the maximum amount out of any property or item where energynet was just auctioning off a lot. Sometimes it is better to sell to an individual investor, sometimes you'll get a better price at auction.

rw, I have been in oil and gas since the 70's in most all aspects but minerals are an investment to me, real estate is my bread and butter. I don't know how much of a fluctuation it is in nat gas prices but I know it is enough of one it will be many years before it returns to it's highs, perhaps even beyond my lifetime. No one can predict the future, but I will predict that within the next 5 years oil prices will be much lower than they are now in part thanks to the high oil prices now. It is always boom and bust and even though there was a short period a couple years ago when oil prices were at $30, we are still in a boom situation.

Thank you, JW. Great stuff.

Thanks so much for your insight, Mineral Joe. Seems like if you knew an individual would offer $2,500 per acre, couldn't hurt to set a reserve (minimum) price of $2,500/acre on an auction site. Obviously, I'm assuming zero commissions. But, you get the point.

What do people think about royalty loans? Is this viewed as an attractive option for royalty owners who would rather not sell their interest but need the income? Are any platforms currently doing something like this? Thank you again.

Jimmy,

Most do set a reserve but most just have to sell like in the case of settling an estate. Also sometimes setting a reserve too high causes a loss of interest as the reserve is unknown.

Not many will loan money on minerals, they want hard assets. I have loaned on minerals and even did a deal once where they sold them with the right to purchase them back within 3 years at a 10% term pay back. If it can be thought of it can be done. I believe anything is possible and can't just means you don't want to.

Odd that you mentioned that. I came across a couple of loans against mineral rights tonight in some old files. They were 60+ years old.

Jimmy Stone said:

What do people think about royalty loans? Is this viewed as an attractive option for royalty owners who would rather not sell their interest but need the income? Are any platforms currently doing something like this? Thank you again.

Thanks, Mineral Joe. Makes sense not to want to loan against the minerals. I was speaking more to a producing royalty with a history of cash flow. Would think that a lender could hire a technical specialist (engineer/geologist) to project cash flow going forward.

JImmy -

If you are asking whether you can transfer your royalty payments to another party for a certain amount of time or until a certain amount of royalties are paid (back), then the answer is yes.

All it amounts to is assigning a revenue stream for a certain amount of time or until a certain amount of money is realized. I would imagine there are many individuals and companies that would consider such an arrangement - perhaps even your own bank.

There may be other ways of structuring the paperwork, but I have seen these types of financial arrangements made via Production Payment Contracts and through Term Royalty Deeds.

Petroleum Engineers prepare Reserve Studies all the time for such matters. And all sorts of software is available for preparing Decline Curve graphs and data showing the projected life and decline of a given well.

I'd suggest you talk to your bank about it first - they know you and you know them.

Another thought, and one I only mention because I have been through the process: Royalty payments might be used to fund a Chapter 13 Plan, which is completely interest free.

Hope this helps -

Charles

It all sounds very expensive hiring firms with engineers and geologist, someone has to pay for it and that someone would be you. I take it your talking 100's of thousand of dollars in revenue to justify such cost and a very large loan. Talk to your bank and others in your area, most will not loan on royalties but Mr. lll can tell you the name of companies from what he wrote, just add him as a friend so he can email you their names.

Jimmy -

In response to "Mineral Joe"'s remarks: Yes, you will have to pay for preparation of the Reserve Study, just as you would have to pay for a current Apprasial Report on your house if you wanted to finance or re-finance it.

And it is true that a Reserve Study on an oil and gas property will be more somewhat more expensive than that of an Apprasial Report on your house, but I am certain that cost would be much less than "Mineral Joe" has suggested.

The cost of such a study would be the same for a property worth millions of dollars as it would be for a property worth a single dollar. It's just "number crunching" for the purposes of a loan - the nature or value of the property is ultimately irrelevant.

Banks and other lending institutions have been loaning money on producing oil and gas properties since the inception of the industry - some 100 years and more. You shouldn't consider inquiring about such a loan as any more intimidating than inquiriing about any other sort of loan. Same thing, just different collateral.

If you are going to consider a bank loan, check with them first before you spend any money on a Reserve Study: Most banks trust certain local or regional Petroleum Engineering firms over others for the preparation of such reports.

Hope this helps -

Charles

For the sake of disclosure:

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas

Energynet and other similar "auction" sites are certainly valid places to list for sale, though there is often a lot of paperwork involved from what I've heard, not to mention commissions and the extra time involved waiting for the auctions to close. Some sellers feel auction sites such as these are the best way to get the highest price however.

There are also quite a few "mineral buyers" with websites who place ads online. Many of them are legitimate buyers. Some however, are just "flippers" posing as buyers. They will buy from you and then mark them up and sell to someone else for substantially more money than they gave you. If you know the value of what you're selling, these "flippers" can sometimes be helpful as they can often facilitate a quick sale if they work with a lot of buyers. If you don't do some valuation research beforehand however, you leave yourself open to being taken advantage of by the unscrupulous ones.

Ask pertinent questions when interviewing someone to sell to. If someone is claiming to be a buyer, make sure they have the ability to close the deal without a lot of fuss. If they have to take out a loan, find a buyer to flip to first, or find a partner to go in with, it's just going to slow down the process and make a sale less likely. Sellers are often disappointed when "complications" like the above come up after they've already been waiting several weeks to close.

If you decide to work with a broker, make sure he/she knows enough about your area to be able to make an educated guess as to what they're worth, or has some other method to ensure you get a fair price from whatever buyer is found. Always best to know the value of what you're selling before you contact anyone, but it's often hard for those not "in the biz" to find out that information on their own and thus they have to find someone they feel is trustworthy in order to help them through the process.

Hope this helps you out.

Frederick M. "Mick" Scott CMM, RPL

Mineral Joe,

I believe most the mineral owners, here, inherited their minerals. Therefore nothing is lost by holding out--good or bad market, except opportunity . Moreover, I don't believe one can reasonably compare private owners to public oil companies. The economics are not comparable. Otherwise profitable companies in every industry make poor fiscal decisions leading to huge losses--every day---regardless of the market.

Again if one has not invested any money in their minerals then one can't lose any money by holding. If one argues that there is a risk of losing by holding, I think the risk is much greater by selling--especially if the minerals haven't been drilled in the last 7 years. If one were to sell minerals today, one would have to be at peace with a possible future profit they or their heirs may miss out on. It's ok to sell if one is willing to accept that. Just like selling stocks--once sold don't ever look back...or don't sell. Anyhow, the buyer and seller will rarely agree on this topic....

The best route is definitely to take out the middleman and contact the land managers of the producers in your area.(after you've researched the going price per acre) In my area, it would be Cimarex. I was surprised how easy it was to get the land manager on the phone and ask if they would like to purchase a small portion of my minerals.A professional in the industry told me to simply call the big companies directly. I spoke to six company's land managers. 5 of those returned my call within a week after I left a message with the legal description. If there is a decent offer--call an oil and gas attorney next! If you don't like to negotiate or don't feel comfortable, I think it's worth 10% to hire a broker. ( just my opinion) I have done it both ways and have not yet received an offer I can be at peace with.

Jimmy,

I have worked for EnergyNet for 5.5 years in the Denver Office. The statements provided by the respondents are both accurate and inaccurate. (Edited by Admin: Use the Private Messaging System for exchanging contact information)

Hunter-

I THINK KIOWA CO. MINERAL RIGHTS OWNERS SHOULD NOT SING ANYTHING IN TELL We CAN ALL GET TOGETHER AND Can Have A COUNTY MEETING ONLINE

Hunter,

I think anything you are willing to offer to clear up any inaccurate statements would be welcome.

Rick

I completely agree with Rick. We are all here to learn everything we can from one another.

Rick Howell said:

Hunter,

I think anything you are willing to offer to clear up any inaccurate statements would be welcome.

Rick

It doesn't make any sense to say just because one inherits something that one can not lose anything because they didn't pay for it. To say risk is greater concerning near or long term futures is also saying one can predict the future, which to my belief is impossible. Very little in life is definitive.

I see your point of view. In that respect, I feel I would have much more to lose by selling my minerals than I would by keeping them...even if they don't produce in my life time.