Selling Mineral Rights : A Basic Overview
If you’re looking to sell your mineral rights, there will likely be many questions that arise. When is the best time to sell the asset? How long will the process take? What are mineral rights in the first place?
These are just a few of the common questions, and while we advise you to educate yourself beyond the scope of just this article, it’s a good starting point for those looking to understand this lesser-known asset class.
One interesting thing of note is that mineral rights are a type of property ownership that is mostly unique to the United States. The U.S. is one of only a select few countries in the world that allows citizens to retain ownership of their mineral rights. In the vast majority of countries, the government retains ownership of all mineral interests.
What are mineral rights?
Perhaps this will be redundant for some, but it’s important to understand exactly what it is that is being bought and sold here. At our Texas-based firm, we’ve found that many landowners are not only unaware of how to go about selling their mineral rights but are also unaware as to what mineral rights are.
Generally speaking, there are two different sets of rights in regard to land ownership. There are surface land rights and subterranean land rights. The former is the type of land ownership that you are already familiar with, and the latter being all rights associated with minerals that are beneath the surface level of your property.
Keep in mind, this is indeed a very general definition and that property law can become fairly complex. For example, water rights are something that may or may not be included with the mineral rights depending on the specific terms of the lease, so be sure to account for this as you proceed. As the landowner, there is no limit to how you can sever and sell your land. It’s a much more flexible asset than many assume. Additionally, there are 5 separate mineral rights ownership types.
This separation of mineral rights, surface rights, water rights, and even wind rights allows landowners to divest of their assets in a manner that is best suited to their long term financial and land development goals.
So what are mineral rights? In the context of selling mineral rights to be used for oil and gas extraction; mineral rights are all of the subterranean land rights usually excluding the water rights. Proceed with this as your most basic definition of the term and adjust the scope of the definition based on the specific terms of the lease or purchase agreement.
When is the best time to sell?
This is one of the more common questions that arise from individuals who decide to sell their mineral rights. Unfortunately, it’s also one of the more difficult to provide an answer to. There are far too many national, local, and even international variables at play to accurately gauge which direction the oil market price is going to swing.
While there are some general guidelines to bear in mind to help you make the best decision, the deciding factors will and should be the various conditions surrounding your personal financial situation. Things such as total allocation of assets, tax burden strategy, and long-term estate planning are just a few examples of factors that are important to consider when deciding to sell mineral rights.
Diversification of assets is probably the single biggest determining factor for most individuals when deciding what action they want to take in regards to their mineral rights and when to divest of them. We’ve heard the mantra of “diversification” repeated again and again by respected financial advisors and industry experts, and for good reason. Having a disproportionate amount of your finances tied up in any single asset is not normally recommended, and that certainly includes mineral rights.
It often makes sense to roll some or all of your mineral rights over into other asset classes such as real estate. One increasingly popular option is to take advantage of the 1031 tax solution that allows you to avoid tax implications that would normally come with the sale of such an asset. If the 1031 tax code exemption sounds like something that would benefit your personal situation, be sure to thoroughly explore this option when selling your mineral assets.
Timing the oil market rarely works out as expected and the proven strategy is to make the decision to sell mineral rights based solely on your personal financial outlook. Obviously, if you need the capital for pressing financial matters then the choice becomes pretty straightforward. If that isn’t the case and you do have the financial flexibility to either retain or divest of your mineral rights, hopefully, this provides you with some high-level perspective.
How long does the selling process take?
Here’s another common question that arises, and the answer to it varies greatly depending on the company with which you choose to sell mineral rights to. As a general rule of thumb, the accepted industry average ranges anywhere from 6-8 weeks.
However, at Bellatorum Resources, we pride ourselves on providing superior customer service to land and mineral owners. Part of this commitment means to eliminate any inefficiencies involved in the somewhat complex process of transferring ownership of mineral and royalty interests. Complications within the chain of title and the slow nature of banking institutions are but two examples of why the turn-around time may be longer than anticipated.
It’s difficult to provide an exact timeframe without knowing the details of your lease and chain of title. That being said, we would be happy to provide you with referrals from previous clients that clearly demonstrate our ability to iterate on our process in a much quicker fashion than our competitors. If you wish to learn more, please feel free to contact a member of our team and we can provide you with a personalized consultation.
Three common mistakes and how to avoid them.
There is certainly no shortage of mistakes that can be made when attempting to sell mineral rights. We’ll highlight common mistakes made that can be avoided with just a bit of preparation that will save you endless time and frustration in the long run.
Not being able to describe the location of your property.
You will need some basic information in order to start the process of running title on your property and providing you with an accurate valuation and timeframe.
Mineral rights have their own version of an “address” known as the legal description. As a property owner, having this legal description on hand will make the process of selling your mineral rights go a bit smoother. That being said, if you aren’t aware of this identifying piece of information, don’t let this deter you.
You may also discover that many companies require you to have multiple check stubs available at request. Here at Bellatorum Resources we take that load off of you and will acquire all detailed lease information on our own if you are unable to do so yourself.
If you prefer to know the specific details regarding the ownership of your property, you can source much of that information from check stubs you receive from the oil operator. Assuming your property is in production/pay, of course. If so, It will also be helpful to know the approximate monthly payment amounts for said production.
Your local county courthouse clerk is a valuable resource when attempting to gather ownership information on your property. As we’re a Texas-based buying firm, here you will find the comprehensive list of clerks for their respective counties in Texas.
Not understanding the details of your lease.
Property law and its associated leases can be quite complex and require interpretation from trained landman professionals. We realize this dependence on third parties can make things difficult in regard to making financial decisions with mineral rights. Many times, there are strong emotional incentives to keep and protect the property that may have been in a family for generations. If this is the case, the last thing you want is for a third-party company to have undue control over what happens on said property.
Understanding the terms of your lease provides you with the leverage you need to navigate a deal that will allow you to get top dollar for your minerals without making other compromises. Like most other contractual agreements, the terms of a mineral lease or purchase agreement are entirely flexible and as the property owner, you have full negotiating power.
As a mineral rights owner, it’s your responsibility to not sign anything until you feel 100% comfortable with the lease terms and the company positioning themselves as the mineral rights buyer.
Understand the company you sell your mineral rights to.
Throughout this process, you’ll likely need to rely on a company that you have no prior knowledge of. The end goal of you getting top dollar for your mineral assets while retaining the desired surface rights will, in large part, come down to the company that you choose to transact with.
You may want to avoid companies that act solely as brokers or “middlemen” as they are ultimately going to reduce the profit margin you receive. Possibly more important for some is that these brokers aren’t incentivized to build long-term relationships with landowners. Often this translates to less time spent confirming the chain of title and ironing out the lease details to your long-term satisfaction.
Find a company with a track record of satisfied landowners that they’ve previously done business with, and don’t hesitate to ask potential buyers for references from said landowners. Here at Bellatorum Resources, we are more than happy to connect our potential customers with previous customers. In fact, a large portion of our current business transactions is sourced via our previous customers’ referrals. We’re proud of this fact and fully intend to continue this track record into the foreseeable future.
Taking the first step…
Once you’ve made the decision to sell your mineral rights, it’s important to fully understand the terms of your lease. Be sure to invoke the guidance of a professional to help you navigate the complexities of leases, purchase agreements, and chain of title.
Subtleties in the laws can vary from state to state so be sure to find a company that has specific experience dealing with mineral rights in the same state that the property is located. If your mineral rights are located within Texas state limits, please free to jump over to our contact page HERE. If you prefer, simply give us a call at 832-559-8217 and a member of our team will be happy to provide you with your free consultation.