How to Get the Most When You Sell Oil and Gas Royalties

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If you’re in the market to sell oil and gas royalties, then you will be interested in this article. Here we cover not only who buys royalties, but how to maximize your return on your investment.

Individual Buyers
How good are your negotiation skills? As in any negotiation, both sides have to feel they are getting something of benefit. There will not be an agreement until this point is reached. Some people get the idea that negotiation is all about forcing the other party into something they don’t want. Perhaps they’re confusing negotiating with conquest.

Negotiating takes preparation, so do your homework. If your potential buyer is a seasoned investor, they will likely do their homework, too. No one can predict the future, but you have to know enough to come close. The more you know about what you’re discussing, the less chance for mistakes and the greater potential for convincing the other party of your asking price.

Remember, they want to buy royalty interests in order to make a profit. Don’t let them think you’re cheating them of that.

It’s important to place yourself in the other party’s shoes. Would you buy what you’re selling? Perhaps you know something they don’t, but then again, they may know more than you realize.

In-Person Auctions
With an auction, you’re pretty much at the mercy of the auctioneer and the ones doing the bidding. You can reduce the risk of shock by setting a minimum bid, but then you run the risk of receiving zero bids. Consult with your auctioneer and take what they say with a good dose of humility. They likely have far more experience with what similar properties have gone for. There are always surprises, but you want to stack things in favor of a positive surprise. And, of course, the auctioneer will likely take a percentage of the earnings as their fee, so set your minimum bid accordingly.

Online Auctions
Online auctions have similar concerns. You may well want to set a minimum bid. You may or may not be able to consult with the online auctioneer concerning your particular royalties, so you may be on your own on the subject of your minimum bid. Again, keep the auctioneer’s cut in mind when setting your minimum bid.

Royalties Acquisitions Companies
There are a number of online companies that buy oil and gas royalties. Most, if not all, provide the ability to query them for a no obligation bid. The obvious advantage, here, is that you can gain bids from several and compare. In a sense, you can hold your own auction. And as each of the companies does not charge a fee, and because here you’re doing the auctioneer’s legwork when you sell oil and gas royalties, you could come out ahead with this approach.

Top 5 Ways to Sell Oil and Gas Royalties

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Are you looking to sell oil and gas royalties? Who buys royalties? This article will cover the 5 most important ways.

Individual Buyer
If you have friends or family who actively buy oil and gas royalties, this could prove to be the easiest way to go. They may be interested in adding your royalties to their portfolio.

Auction
Customarily, auctions handle larger oil and gas royalties and may not consider smaller investment properties. Similar to an agent in real estate sales, the auctioneer will usually take a percentage of the earnings from the sale of the royalties. Of course they will advertise and market your royalties to possible investors. It takes time to advertise and then to hold an auction, so if you need quick cash for any reason, this would not be your best alternative. Additionally, auctions are public events and you would lose a measure of privacy from such a transaction.

In-Person Oil and Gas Auction
These are restricted to a particular geographic area and this may limit participation. Naturally, you want to receive more for your property, but you may receive less than you anticipated unless you set a minimum bid. One possible advantage to an in-person action is that it may attract area royalty owners and investors that could possess a greater knowledge of your property and that could lead to a higher selling price. A more well-known in-person royalty auctioneer is The Oil & Gas Asset Clearinghouse. To find out more about the services they offer, visit their website at, http://www.ogclearinghouse.com.

Online Auction
If you’re familiar with eBay, then you should have no problem understanding how an online royalties auction works. The online auctioneer will handle the promotion of your royalties to prospective investors, will display your royalties on their website and their registered members will be able to place bids. One big advantage is that the auction remains open 24 hours a day, allowing greater freedom for potential buyers until the auction is over. A top online auctioneer for oil and gas is EnergyNet. For more information on the services they offer, visit their website at, http://www.energynet.com.

Royalty Acquisitions Company
There are a number of online acquisitions companies that can make an offer on your royalties. Some will buy both producing and non-producing oil and gas royalties from individual royalty owners. Lack of fees is one key advantage. Another advantage is the far greater speed of the transaction. And naturally, it remains to their advantage and yours to perform the transaction with utmost discretion. Plus, there is the advantage of receiving a no risk valuation of the royalties. It’s all as easy as requesting a bid through their individual websites. Once an acquisitions company receives your bid request, they will make a lump sum offer to buy royalty interests which you, of course, have the option to reject or accept. With these advantages, this may prove to be the best option for you to sell oil and gas royalties.

How to Sell Mineral Rights

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If you own land or merely the mineral rights of the land, selling mineral rights is easy.

The first step when you sell mineral rights is to ask, “Who buys mineral rights?” Perhaps a more important question is, “Why would someone buy mineral rights?” Knowing the motivation may help you achieve your goals.

If you are a small investor with one or even a handful of properties, even if those properties are currently producing, you may want to reduce your risk by having someone else buy mineral interests. For one thing a larger investor will maintain far less risk by obtaining geologically diverse properties. If one mineral resource goes “dry,” others likely won’t for some time to come. So, the larger investor is looking for this kind of diversification. If they already own property near yours, they may not be interested to buy mineral interests at that location.

Individual Buyers
When you sell mineral rights to an individual investor, you frequently have more work cut out for you. Why? Because you have to do your homework, first. You’re going to have to sell and to negotiate. That means you have to know up front every possible thing there is to know about your property, adjacent properties and the market for that particular mineral.

If negotiation is not your strong suit, then you might want to consider getting help, but then they will likely want a percentage.

In-Person Auctions
An auction house will gather a number of properties for sale at auction. This takes time. When they have a full portfolio of items, they will then set a date and then advertise the auction to prospective buyers. Be sure to consider setting a minimum bid for your mineral rights, otherwise you could receive a shock—far less than you expected.

You may want to consult with your auctioneer before setting the minimum bid, though. Their experience and expertise could prove invaluable in setting a reasonable minimum, otherwise you may receive no bids at all. And that would make the entire auction experience a waste of time.

Online Auctions
The beauty of an online auction is that they’re international and can start immediately upon acceptance. There’s no need to wait for a full portfolio in order to hold the auction. Again, you might consider establishing a minimum bid, though you may or may not receive any help from the online auctioneer on this.

Acquisitions Company
Many such acquisitions companies maintain an online presence. All you need to do is to request them to make a bid on your mineral rights. There is usually no commitment to sell mineral rights to them. In a sense, this is like an auction, but you are the auctioneer, polling the acquisitions company or companies for their offer(s).

The Top 7 Reasons to Sell Oil and Gas Royalties

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Investing can be a great experience and potentially very rewarding. But when should you sell oil and gas royalties? That answer is going to be different for each individual. Here are some of the key reasons to consider.

1. Risk. All investments have some inherent risk. If you invested in drilling oil wells to see if there was oil—exploration—you would likely experience greater fiscal hardship, because of the greater risk of failure. On the other hand, investing in diversified funds during a bull market has near zero risk.

The danger always remains that your well could go suddenly dry. When it does—and all eventually will—your royalties stop forever.

2. Saving your heirs the hassle of title transfer. Probate and other legal issues can prove messy, time consuming and expensive. If legal and complex fiscal issues are foreign to your heirs, you might consider removing that burden from their future. If they are already familiar with such things, then this is less of an issue.

3. Reinvesting in safer investments. There are properties and instruments which have a track record of far greater safety. As always, there is no guarantee, but you increase your chances for long-range returns. It’s nice to think that your royalties will continue to pay forever, but they won’t. Consider what would happen if they stopped today. Then, consider the long-range historical record of other types of investments.

4. Eliminating the burden of paperwork. Certainly, some people don’t mind paperwork, and some may even enjoy it. But if the paperwork involved in managing and reporting on your royalties is a hassle, this may be one more reason to sell and to enjoy the reduced hassle of some other activity.

5. Cashing in on the lowest capital gains tax rate in nearly 80 years. The capital gains maximum rate is 15%, but in 2013 that advantage disappears. The rate hasn’t been this low since the early 1930s and next year that maximum rate goes up to 25%.

6. Paying off debts, lowering your monthly expenses. Selling your royalties could generate a tidy sum of money. There are a great many things you could use the money for. Perhaps one of the smartest is that of reducing your own fiscal burdens.

7. Having extra cash for important family concerns. This could include things like home improvement, college or even a much-needed family vacation.

There may be other reasons to sell oil and gas royalties, but you may be asking why would anyone want to buy your royalties if they are inherently so risky? Who buys royalties? The answer is simple. Large investors reduce their risk by spreading their investments over geologically diverse areas. The early failure of one well will be offset by the continuation of others.

How to Make Money from American Land and Minerals

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American land and minerals rights can be referred to as a mineral estate. If you discovered minerals below the surface of the land, how would you exploit this? It is important to understand the elements of mineral rights in the country. These include:

  • right to use the surface as necessary to extract the minerals
  • right to executive conveyances
  • right to receive royalties
  • right to receive consideration
  • right to receive delay rentals

Owning American land and minerals offers exciting possibilities. The laws in the United States allow land owners to mine, exploit, and produce any or all the minerals beneath the surface of the property. That simply means that when oil, gas, or precious metals are discovered on your property, they’re yours. It’s up to you to find a drilling and production company that will extract the resources.

Compensation from American Land and Mineral Rights

Depending on the contract that was mutually agreed-upon, the compensation can be based on the market price of the commodity, the actual revenue of the company you partnered with, or you can even get a share of the commodity itself. If you have no experience in dealing with the markets, getting compensation based on market price may be the best option. Here, you will generate an income stream based on a percentage of sales even if the company makes a loss due to fluctuations.

On the other hand, there are also a number of mineral rights owners who opt to get compensation based on actual revenue or “in kind” compensation. In many instances, they felt compelled to accept this type of contract.

A lot of oil and gas companies, for example, do not want to accept a hundred percent of the risks of exploration because it can cost a lot of money. If it turns out that your property does not have oil, the company will have to bear the loss. With the two other types of payment options, their risks are managed to a certain extent.

Getting American Land and Minerals Rights Today

Are you interested in investing in American land and minerals? This is an investment opportunity that shows a great deal of promise, and you can take part in these opportunities. In the past, the rewards were only shared between families and friends. But nowadays, it is possible to invest and buy mineral rights by contacting a broker or a middleman. There are a variety of firms that offer buying and selling opportunities of American land and minerals online.

3 Types of Compensation Plans from American Land & Minerals

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Unlike most other countries, the US law allows land owners to own American land and mineral rights. Whether there is oil, gas, or precious metals under the surface of your property, you can earn from every resource that is extracted from the land. If you’re like most land owners though, it is highly likely that you’d need the expertise of drilling companies (or oil and gas companies) to extract the resources. This is where royalties come into the picture.

Land leases often contain a royalty clause. For example, when an oil and gas company decides to drill on your property, you will receive a share of the gross production. You are not obliged to share in the cost of production. In essence, it doesn’t matter if the company makes a profit or a loss, you’ll always receive the royalty payments.

However, it is important to note that in some cases, the land and mineral contract you sign might state differently. For example, the expenses of exploration, production, and distribution may be shared by the company and the landowner if you agree to it. The royalty cost may also state that the landowner will share the costs that occur after extraction. There are other considerations you need to be aware of when you sell mineral rights, as well. For example, there are actually three methods to determine how the royalty payments are valued.

Three Options in Determining American Land & Minerals Payment

  • Market price – one option is to use the market price of the commodity in the market. There are certain leases that set the prices at the highest level for fields within a hundred miles on the day the oil is extracted.
  • Actual revenue – another option is to receive royalty from the actual revenues that were generated from the oil and gas sale. The royalty payment may be higher or lower to the market price of the commodity.
  • “In-kind” payments – in this case, the landowner gets more flexibility. He may take possession of his share of oil and gas produced. These, in turn, can be sold to the production company which may bring higher profits if it is sold when the price of the commodity is up.

If you are interested in selling mineral rights, it is important to understand what each of the above options entails. This will help you maximize the income generated from mineral rights.

Are You an Oil Royalties Idiot?

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Images of becoming an oil baron like the Rockefellers may cross your mind, or you may simply think that owning rights to oil producing property is a good investment, especially with the high price of gasoline these days.

Nothing could be further from the truth. First of all, they broke the mold with the Rockefellers. They truly are a one-of-a-kind institution.

Secondly, your oil royalties could very well continue to pay out handsomely for some time to come, or they could go bust tomorrow.

If you’re looking for oil prices to continue upward, there is every possibility that they will for awhile. But such a prospect contains an obvious element of risk. Perhaps the biggest risk, though, comes from the fact that your one oil well or group of wells will eventually run dry. No one knows when. That remains the big unknown.

Selling Your Royalties

Right now, you might be asking yourself, “Should I sell oil royalties rather than hold onto them?” The answer depends upon your own finances and how well they would weather the inherent risks involved. Could you easily survive all of your oil royalties running dry tomorrow? Remember—once they’re dry, they’re worthless. Your done.

When you sell oil royalty, you can merely invest in something safer for the individual investor.

So, the next question remains how to sell oil royalties. Perhaps the easiest and safest method is to sell to an investment company specializing in oil royalties and mineral rights. Why? Because they can give you a tidy sum for your rights in a matter of days or even hours.

Now, you’re likely asking: Why would an investment company want to buy oil royalties if they’re so risky? The answer is quite simple, really. Your one well contains a high degree of risk. By investing in many geographically diverse wells, they greatly reduce their risk. So, even if your one well goes bust the day after they purchase from you, they still have many other wells that have a higher likelihood of continued production.

Advantages of Selling Now

  • Eliminating the risk of losing on your investment because the well suddenly goes dry—and it will eventually.
  • Saving your heirs the hassle of title transfer.
  • Reinvesting in safer investments.
  • Eliminating the burden of paperwork.
  • Cashing in on the lowest capital gains tax rate in nearly 80 years.
  • Paying off debts, lowering your monthly expenses.
  • Having extra cash for important family concerns, like home improvement, college or even a much-needed family vacation.

And just think—you can gain a new level of peace-of-mind in a matter of hours. It’s your future. Make the best of it.

The Future of Mineral Rights

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If you’re holding mineral rights, you need to be aware of the very real dangers inherent with your investment.

Mineral market values can go up or down, but one startling fact remains: your property could run empty. Think about it for a moment. There is no guarantee that your mineral resource will continue to produce. That remains a major gamble on your part.

The Big Question

Perhaps right now you’re asking, “Should I sell my mineral rights?” That really depends on your needs. If you will depend on the income from your mineral rights, then you definitely need a safer source of income. If you’re fine with the possibility of the rights becoming worthless tomorrow, then by all means, hold onto it. You could enjoy a few more years of returns.

All mineral sources run out eventually. The big problem is that no one knows when they will run out—thus the risk.

Selling mineral rights might prove to be the smart move. With the cash you receive, you can invest in other, safer properties, or use the money for home improvements, medical expenses, college tuition or other important needs.

Options

There are a number of ways on how to sell mineral rights. One of the more popular methods is to sell them to an investment company specializing in buying mineral rights.

One obvious question comes to mind: Why would anyone want to buy mineral rights if they’re so risky. A large investment company specializing in mineral rights will reduce their risk by buying mineral rights from geographically diverse regions. Your one well or mine could go bust tomorrow, but by the law of averages, many of their investments will last far longer. The individual investor is out-gunned on this point. To sell mineral rights might well be the smartest thing you could do.

Advantages of Selling Now 

  • Eliminating the risk of losing on your investment because the well suddenly goes dry—and it will eventually.
  • Saving your heirs the hassle of title transfer.
  • Reinvesting in safer investments.
  • Eliminating the burden of paperwork.
  • Cashing in on the lowest capital gains tax rate in nearly 80 years.
  • Paying off debts, lowering your monthly expenses.
  • Having extra cash for important family concerns, like home improvement, college or even a much-needed family vacation.

Sell your mineral rights? If you have the fiscal flexibility to gamble, you might well hold onto your mineral rights, but picture what you would do if the paper became worthless tomorrow. How would it affect your own personal bottom line? Naturally, it’s your future and only you can make that decision. But now you have a better idea of what is at stake.

 

3 Important Lies Gas Royalty and Mineral Rights Sellers Like to Tell

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When you buy into gas royalties or mineral rights, you do so with an eye at long term income. It’s an investment. But how good is it?

Like all investments, there are varying degrees of risk. While those who sell gas royalties to investors may not lie to you directly, they can omit certain crucial facts. The overall effect of this is an implication of something that isn’t true. Effectively, it’s a lie. They will get away with it, because it is not an explicitly stated lie. You are responsible for being aware of this subtle distinction. Unscrupulous sales persons prey on this vulnerability all of the time.

1. It’s a safe investment. When you buy oil and gas royalties, you take a big risk. Your one source of income may have a great deal of potential, or it may be a well which is almost tapped out. It’s hard to tell. The ones who sell oil and gas royalties may say something like, “This is oil” or “this is gas” and “have you seen the prices of fuel, lately?” The fact is that oil and gas are valuable commodities. While this is true, the implication is that anything associated with oil and gas are automatically valuable. An empty well is anything but valuable.

2. Your well will last forever. While we’ve never heard of anyone explicitly claiming this, there are many a salesperson who will imply such things just to make the sale.

3. The value of your royalty will keep going up. Just because gas prices continue to go up does not mean they will always do so. Look at house values. They kept going up for a long time and then went bust. When a salesperson points out something exciting to imply that it relates to your one investment, they are using a very old trick of “guilt by association.” Values have gone up, so future values will go up. Sounds nice, but it isn’t necessarily true.

 

What to Do

If you have oil or gas royalties or mineral rights and will be depending on the income from them, you need to reconsider your plans.

Why would anyone invest in such a thing? Perhaps the most strategic investments in oil, gas and minerals involves large-scale risk management. Large investors buy up rights and royalties from geographically diverse domains so that the law of averages works in their favor. They know that some will lose, but others will win in the long run. This takes a lot more capital than that controlled by the small, individual investor.

We recommend that you sell your oil and gas royalty to a larger investor who can absorb the risk. Shop around for the best deal and then invest in something with greater long-term stability.

How to Protect Your Future if You Own Oil or Gas Royalties

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The biggest risk with any mineral is in the uncertainty with how long the source will pay out. What if your oil well ran dry tomorrow? Your royalties would stop—forever.

Disadvantages

Here are some disadvantages to having oil or gas royalties.

  • Oil, gas and mineral prices will not always go up. Your royalties are based on the prevailing prices. While it’s nice to think that the prices will continue to go up forever, they won’t.
  • Your property will eventually stop paying royalties. When it stops, it will be forever. When a well runs dry, the royalty property becomes worthless.
  • Title transfer is an expensive and complicated burden for heirs. This is not the kind of thing you want to leave to your loved ones.
  • Chore of record keeping and paperwork. If you don’t enjoy paperwork and tax forms, then this can prove to be a real headache.
  • Keeping debt. If you have high-interest debt, that effectively nullifies the income you gain from an investment. You really should pay off all high-interest debt.

 

High Risk

For anyone who depends on royalty payments, oil and gas remains a dangerous risk, unless they own geologically diverse property. Two or three isn’t good enough to ameliorate the risk. You have to own dozens of properties to bring the risk to tolerable levels. If you don’t have the funds to invest that broadly in the energy sector, then we recommend finding someone to buy oil and gas royalties from you so that you can invest in something safer, like a diversified fund stock portfolio.

 

Advantages of Selling Now

  • Saving your heirs the hassle of title transfer.
  • Eliminating the risk of losing on your investment because the well suddenly goes dry—and it will eventually.
  • Eliminating the burden of paperwork.
  • Reinvesting in safer investments.
  • Paying off debts, lowering your monthly expenses.
  • Cashing in on the lowest capital gains tax rate in nearly 80 years.
  • Having extra cash for important family concerns, like home improvement, college or even a much-needed family vacation.

 

Summing it Up

All investments contain some risk. That’s part of life. Royalties from oil and gas properties will always run out sooner or later. Oil and gas investments work only if you own a great many, geologically diverse properties which reduce the overall risk in the short term. If you hold royalties only for a geographically limited set of properties, then your risk remains high that your income flow will be in jeopardy in the near term. Reinvest in something safer or spend the buy-out on important needs. You will rest easier knowing that your future is more secure.