Selling WI but retaining RI

General Mineral Rights Discussion
1

I have both a working interest and a royalty interest. Can I sell one and retain the other? If so, advantage vs. disadvantage?

Thanks,

C

2

Chris,

Your circumstances may be special, but in general, royalty interest goes with the land and may apply to production from future wells, giving it a longer life with no risk. Working interests are well specific and carry the production risk and operating cost of the well and are net of the royalty interests against the well. In some cases, working interests are automatically in place for future wells drilled on the land unless converted to royalty interest. Bottom line is that both assets are valued differently due to costs and risk; 1% RI is not equivalent to 1% WI. Nevertheless, there is no reason you can't sell them independently. I've done it many times. The sale of a royalty interest is documented through the courthouse if it goes with the land and a WI is documented through the Operator as both revenue and liabilities are made through the operator.

For you purposes, have each evaluated separately so you understand what future potential you are selling and the buyer is purchasing. A buyer should be granted a higher discount on WI than on RI.

3

Thanks for the beneficial and educational reply Gary.

Chris

4

Can you tell me how to have Working Interest evaluated for value?

5

Mollie,

If you are interested in evaluating an offer to buy, consider your NRI, how soon a well may be drilled, the presence of proven undeveloped reserves, and the cost of participating. After that, the risk aversity of the buyer is important bu subjective. Holding an auction will not produce satisfactory results unless you are only dealing with proven operators and non-operating investors.

If you want a carried interest back, that is a whole other subject.

Gary L Hutchinson