Zarado Royalties LLC (Arlington, TX)

General Mineral Rights Discussion
#1

I am the lead person that succesfully completed neighborhood neigotiations with Chesapeake (through Paloma Resources) in 2008 that netted us $22,000 per acre bonus, 25% no-cost royalties, all the pughs, 3 yr. primary, 2 yr. optional with another $22K payment, etc., etc. A year and a half later, they are starting to drill in our area.

My group was called SEAPO (SouthEast Arlington Property Owners) and we represented about 2200 acres of mostly residenrtial properties of about .25 acres each. (7600 rooftops.) It was a BIG job.

My constiuents are now being contacted by Zarado Royalties with an offer to purchase their mineral lease agreements with Chesapeake for pennies on the dollar. It is entirely possible that some of these folks will never see a royalty check because of the way Chesapeake is working their leaseholds.

My question is - does anyone know about this company and what they are offering? I need to know how to anwser their questions. So far I have been suggesting that they would not be very wise to sell their mineral rights forever.

Thanks Jim

#2

Zarado Royalties is a mineral and royalty acquisition company out of Arlington, TX. My guess is that they are offering to acquire the mineral owner’s royalty interest or mineral rights. The question is, should the mineral owner accept a lump sum now or wait to receive royalties. There are so many variable to consider when deciding whether or not to sell and at what price.

Review the offer and your options and then make an informed decision. Most ‘good offers’ should compensate for 60+ months of potential future royalty income. Don’t compare offers to purchase royalties with lease bonus amounts, different ball game all together. An option may be to sell a percentage of the royalty interest (1/2 of 1/4).

There are many companies that specialize in royalty acquisition, this is very common.

#3

Thanks Jules

That’s pretty much the advice I’ve been giving out. It appears to me that companies like Zarado are like carpetbaggers looking to take advantage of a situation in tough economic times. By offering a lump sum to folks who may be struggling financially, they take advantage of their plight and gain mineral rights for pennies on the dollar.

Granted there is some risk on their part by buying mineral rights where drilling may not occur but overall I think we all know that the true wealth of a mineral lease contract is in the future royalties, not the initial bonus, and that’s what they’re banking on.

Thanks for the reply.

#4

Jim,

Like many markets, royalty buyers come in all varieties. There are companies that engage in immoral tactics to buy royalty interest, i.e., prey on the old, poor, misinformed, uneducated, etc… These unethical practices tarnish the reputation of legitimate royalty acquisition companies. The trade of royalty interest is a legitimate business, as long as the owner is aware of all implications regarding the sale and they can make an informed decision. Selling royalty interest is just another way an owner of an asset can hedge their interest.

I agree, the “true wealth” is in royalties. But you can’t discount the value of 22k per net mineral acre bonus. That is why some companies acquire mineral rights, which would allow them to lease the property again shall the current lease expire. Buying royalties does not allow the owner to negotiate future leases, so the return is limited to production. For this reason, mineral rights often trade at higher prices. There are companies that only deal in mineral rights.

“It appears to me that companies like Zarado are like carpetbaggers looking to take advantage of a situation in tough economic times.”

Companies have been buying royalty interest for over 70 years. I have seen royalty sales by attorneys, millionaire real estate professionals, oil and gas professionals. The market is diverse.

#5

We have purchased thousands of acres of minerals and royalties throughout the years and we have always found that the WAG theory has always performed the best. What is the WAG theory you ask: It is a WILD ASS GUESS!!!

#6

You must be careful not to be giving “legal advice”. As a general rule, one would not want to sell their mineral rights. If leased mineral rights are not held by production at end of primary term there will be future opportunities to lease again under current mkt conditions. This means more bonuses!!! If rights are producing this means potential for long term income. There are many oil and gas auction sites where one can get an idea of what area markets are doing. If one has signficant holdings they should have their own lease form prepared by a reputable oil and gas atty familiar with area and state. Offers are always circulating to mineral owners, typically in hot areas, and generally way below mkt value. Extreme caution is advised.

#7

Stephanie Wilbanks, CPL said:

You must be careful not to be giving “legal advice”. As a general rule, one would not want to sell their mineral rights. If leased mineral rights are not held by production at end of primary term there will be future opportunities to lease again under current mkt conditions. This means more bonuses!!! If rights are producing this means potential for long term income. There are many oil and gas auction sites where one can get an idea of what area markets are doing. If one has signficant holdings they should have their own lease form prepared by a reputable oil and gas atty familiar with area and state. Offers are always circulating to mineral owners, typically in hot areas, and generally way below mkt value. Extreme caution is advised.
#8