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

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

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 Protect Your Future if You Own Oil or Gas Royalties

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.