Small royalties vs. high offers

I inherited mineral rights and get approx $1000 a year in royalties, sometimes less, even when the price per barrel is high. But I get offers of $150K -$200k for my mineral rights. Why the huge discrepancy in the my small royalty amount per year and the very high offers for my mineral rights? Why would somebody be willing to pay so much, while I’m making such a small amount in royalties? Is it as simple as the buyer seeing much more potential, or is it to do with economic efficiency, getting rid of “so many owners”?

Many royalty buyers watch for drilling permits in the area and lease activity. I monitor the Texas RRC monthly to see what permits have been filed in our area of ownership.

Most buyers intend to make a profit off of the minerals they buy. Generally, they pay for proved reserves from producing wells with some paying a bit for future potential. If you are getting multiple offers, a whole bunch of folks “know something”. They are willing to take the risk of timing of when or if those future wells will be drilled. Minerals owners can wait and see what happens and benefit from what they already own.

Is it more financially advantageous for an oil co. to pay, let’s say 500K, for mineral rights vs. an individual that is not involved in owning an oil co.? What seems odd to me is that I’ve heard a few stories of oil companies offering people $500,000 or so for their mineral rights while the owner has made nothing in royalties for decades. The owner rejects all offers and dies of old age without making any money. This scenario seems pretty common to me. Maybe I’ve heard this scenario a few times by chance and it’s really not such a common scenario. Is it that oil companies say, “If we can’t own a large percentage of the minerals, then we won’t drill, so nobody makes money.” Is it that simple?

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