Mineral Value & Mineral Offers
- Yoann Hispa
- Jul 28, 2024
- 6 min read
Mineral Value & Mineral Offers: FAQ's
Understanding the value of your mineral rights is essential when considering mineral lease offers. Whether you're sitting on a piece of property rich in oil, gas, or other valuable resources, knowing how these rights are assessed can help you make informed decisions. Factors such as location, resource availability, and market demand all play a role in determining the worth of your mineral rights, ensuring you maximize potential lease earnings. In this guide, we'll outline commonly asked questions and answers about mineral rights values and mineral lease offers.
I received an offer for my mineral rights. What should I do?
It is very common for mineral buyers and flippers to mass mail mineral owners and try to buy mineral interests from those who respond. The worst thing you can do as a mineral owner is make an uninformed financial decision when it comes to leasing or selling your mineral rights. LandApp’s goal is to equip mineral owners with information that assists them in maximizing the value of their mineral rights. A mineral owner can search for their property on LandApp's map to get a free estimated value of their oil and gas rights on a dollar per acre ($/acre) basis. Any client who lists their minerals for sale or lease on LandApp’s marketplace will receive a free valuation report showing both the full reserve value and the market value of their mineral assets. There is no obligation to sell on LandApp's marketplace and any offer can be accepted, rejected or countered.
I received similar offers for my mineral interest. Does this mean the offer is on par with oil & gas market value?
Similar mineral rights offers are not an indication of market value. It is common for mineral buyers and flippers to create subsidiaries wholly-owned by the same parent company. These subsidiaries send offer letters at the same time.
For example, one subsidiary sends an offer for $1,000/ac, the other for $1,100/ac, and another of these subsidiaries sends an offer for $1,150/ac. The mineral owner will think that the market value is around $1,100/ac, and may feel great negotiating a deal at $1,400/ac. The real market value could be 5 times the amount being offered by these buyers. This tactic is orchestrated by the mineral buyer to give a false sense of market value to the mineral owner.
I got an offer in the mail to lease my minerals. How do I know if the mineral offer is a good deal?
It may not be. Operators lease land from mineral owners to develop oil & gas wells and sell the commodity to the market. Since you own the minerals, they must lease the land from you and offer a share of the revenue in addition to other terms specified in the lease such as lease bonus and royalty. In an ideal situation, these lease agreements should be a win/win for both parties. However, when it comes to understanding the economics, the operator is at an advantage having advanced technical knowledge, staff, and resources.
How much are my mineral rights worth?
LandApp provides a free estimate of your mineral rights directly online. Simply type in your address on LandApp's map to get a free estimated value on a dollar per acre ($/acre) basis. Only LandApp provides this information to you at no cost and with no obligations. If you choose to list on LandApp's marketplace, you’ll receive a report that estimates the value of your mineral rights so that you make informed decisions when you do receive offers on your oil & gas rights.
The landman who made an offer on my mineral rights gave me a deadline for accepting. They say the offer is off the table if I don’t accept by that date. Should I hurry up and sign?
Definitely not! Deadlines on a purchase offer are a pressure sales tactic and they often result in a low sale or lease price for your mineral rights. Keep calm in this situation, and don’t allow the urgency to impact your better decision making process. Professional interactions should involve clear communication with room for questions and flexibility within agreements.
While the deal terms may or may not be fair, it is important to be informed about the terms of the mineral deal and the value of your asset. To maximize value when you lease or sell your mineral rights, the key is to get your asset in front of a large audience of mineral rights buyers. This allows these buyers to compete against one another, driving up the price and ensuring that you get the maximum market value when you sell your royalty interests. In most cases, creating a competitive situation where multiple buyers are making offers on your minerals is the best way to maximize the sale or lease price of your mineral rights.
Why did my neighbor receive a lower or higher offer for their minerals?
A nearby sales or lease price is not a measure of what your minerals are worth. The primary consideration when it comes to what your minerals are worth is geology. The subsurface is just as dynamic and changing as the surface, only we can’t see it. Geology is a key driver in mineral value and can change drastically within a short distance, which means different mineral values for properties that are nearby. There are other important factors to consider when it comes to the value of your mineral rights such as:
Mineral royalty rate
Amount of mineral acres
Existing or historical wells on the property
Oil and gas market conditions
Different companies have approached me offering different amounts for the lease bonus and royalty on my mineral rights. What do these terms mean, and why do they vary?
A lease bonus is a one-time payment made to you, the mineral owner, on a per/acre basis at the time the lease is signed. An oil & gas royalty payment is a percentage of the proceeds from the sale of production paid monthly to the mineral owner.
Historically, royalty retained by the mineral owner in the lease has ranged between 12.5% to 25%. The lower royalty you retain in the lease, the higher net revenue is retained by the operator. As an example, if you retain a 25% royalty, the operator could pay 100% of the cost to drill, complete and market the production and retain 75% of the revenue interest. If you retain a 12.5% royalty, the operator retains 87.5% of the revenue and recovers its investment much faster.
One thing to consider is that operators prefer to drill on oil and gas leases with a lower royalty. So, accepting a lower royalty and taking more cash in lease bonus could increase the chance your minerals get drilled and produced. Some mineral owners could receive a much higher lease bonus if they retain a lower royalty. Royalty is only received by the mineral owner if a well is drilled and completed, and if it is a producer. If a well is drilled and does not produce oil or gas (a “dry hole”), or if a well is never drilled, the mineral owner would have benefited from receiving a higher lease bonus.
Is it a good idea to have my attorney negotiate the lease or sale of my minerals?
We have a great respect for attorneys and work with them on legal matters, but attorneys cannot value your minerals and are not professional mineral negotiators. An attorney gets paid a large hourly rate, and unfortunately, the more difficult your transaction becomes and the longer it takes, the more they get paid by you. If an attorney offers to work for a commission, they are likely in violation of ethics rules and can face disciplinary action by the ethics board of the state. You can use an attorney to review the legal documents for the lease or sale of your minerals. If you do not know of an attorney, we can refer you to an attorney in your state specialized in oil & gas transactions.
How can I sell my mineral rights?
Mineral rights owners can list their properties for sale for free on LandApp's nationwide marketplace. There are no fees or commissions to list, and there are no obligations to accept any offers. LandApp's marketplace is used by a unique network of traditional buyers plus premium buyers, like oil and gas developers, property investors, and more, helping you to get the most value from the sale of your mineral rights.
