Never Sell Mineral Rights? Here are 7 reasons to sell mineral rights
You have probably heard the advice to never sell mineral rights. This is common advice handed down from generations of mineral owners. When someone tells you to never sell mineral rights they are probably not considering your personal situation. Every person has a unique situation. For some it can make sense to sell mineral rights. For others it would make sense to hold onto the mineral rights. The common “never sell mineral rights” advice should not apply to everyone. This article will help you better understand when you should hold onto mineral rights and when you should sell mineral rights.
When to hold onto mineral rights
The advice to never sell mineral rights had to come from some where. The primary reason why this advice is so common is that there is a lot of value in oil and gas. The oil and gas industry is very lucrative and if they drill a new well on your mineral rights, you stand to make a substantial amount of money. As you will see below, there are many reasons to sell mineral rights but when should you keep them?
In our opinion there is only one situation where a mineral owner should continue holding mineral rights. If you are in a very secure financial position with well diversified assets, we recommend holding onto your mineral rights. What does this mean exactly? If you can say yes to all of the following you are in a good position to hold onto the mineral rights:
- Your home is either paid off or your monthly house payment is insignificant
- You have a 6 month emergency fund or easy access to liquid cash
- You have a very strong 401K/retirement built up that will cover your retirement completely
- You have diversified holdings outside of your 401K/retirement (real estate, business ownership, private equity ownership, etc)
- You have money set aside for college/education/long term needs of your children (if applicable)
- Losing your job would make virtually no impact on your life as you have strong savings and a funded retirement
If the situation above describes you, then holding onto mineral rights can make a lot of sense. Oil and Gas mineral rights are an investment that might pay off over time. If you are well diversified and set up financially, we recommend holding onto the mineral rights and seeing if those mineral rights become more valuable in the future. If the situation above does not describe you, the advice to never sell mineral rights may not be in your best interests. Even if the situation above does describe you, there are other reasons to sell mineral rights.
7 Reasons to Sell Mineral Rights
The typical advice to never sell mineral rights is outdated for many reason. However, at US Mineral Exchange we help mineral owners sell mineral rights so we are biased. We recommend carefully considering the information and making a decision that is right for your situation.
Here are 7 reasons why never sell mineral rights may be bad advice for your situation:
1. Diversification: In our opinion the #1 number one reason to sell mineral rights is diversification. We talk to a lot of mineral owners who have a substantial amount of their net worth tied to their mineral rights. If your mineral rights make up more than 10% of your net worth you should consider selling. When you sell mineral rights, you can invest in a total stock market ETF that will give you diversification AND give you a dividend payment every quarter.
2. Control: When people tell you to never sell mineral rights they are not taking into consideration that you have no control over the mineral rights. When you own a stock, real estate, or other asset, you decide what happens with that asset. When you own mineral rights you do not decide when (or if) any drilling will take place. As a mineral owner, you would prefer that an oil and gas operator comes in and drills immediately so that you can get your cash out. However, you have no control over this and many mineral owners wait decades (or a lifetime) and nothing happens.
3. Oil & Gas Prices: In addition to not controlling when or if any drilling occurs, you also have no control over the price of oil and gas. Oil and Gas prices have been historically volatile. This industry is known as a boom and bust type of industry. The amount you get from your royalty income is driven by how much oil and gas is recovered, your royalty percentage, and oil and gas prices. The value of your mineral rights could swing wildly from one year to the next based on oil and gas price.
4. Short Term Financial Need: Many mineral owners are facing a short term financial need. If you recently lost your job, need to make a down payment on a home, want to start a business, or help your child through college, selling mineral rights can make sense. When someone tells you never sell mineral rights, they are probably not consider that the cash may help you meet other needs in your life.
5. Medicaid Eligibility: While the rules vary by state, if you receive oil and gas royalty income you may not be eligible for medicaid. The rules are complicated but we have a guide to help you better understand the value for medicaid eligibility purposes.
6. Gambling/Risk: It may not seem like it, but when you hold mineral rights you are making a big gamble. This is a gamble you can afford to take if you are in a good financial situation, but if you are not this gamble may not pay off. There are many different factors you are betting on when you own mineral rights. Here are some of the risks you are taking:
- Oil and Gas prices may go up or down over time
- Many mineral buyers are private equity backed, if the economy declines the number of buyers decreases which lowers the value
- You may hold your mineral rights for decades and no drilling occurs
- New technology could make drilling more productive, this increases supply and lowers value (this is already happening)
- Your area may be in demand one year, but worth a fraction of the prices years later
7. Time Value of Money: When you sell mineral rights you get that money today. Many people who tell you to never sell mineral rights don’t take the time value of money into account. If they finally drill a well 20 years from now, you may end up with less money than if you had simply sold and invested the money in the stock market.
One more reason to sell mineral rights – Renewable Energy / Global Warming / Politics
Putting the politics aside, one thing we can all agree on is that there is a finite amount of oil in the world. It may not occur in our lifetimes, but alternative fuel sources will be needed in the future. In addition to this, there is a large political movement related to global warming to find cleaner alternatives now. Whether you agree or disagree, there is a substantial amount of pressure moving against the oil and gas industry. The coal industry has already been decimated. Democratic presidential candidate Elizabeth Warren is proposing a ban on fracking. A growing number of politicians are against oil and gas.
The only reason oil and gas continues to survive is because there is no legitimate economic alternative. Once a clean & economic solution is available (nuclear, etc), the oil and gas industry will no longer be needed in the same capacity as it is today and prices will plummet. This is not a question of if this shift will occur, it is when will this shift occur. While no one has the answer, we believe it’s coming sooner than later.
At what point will clean and economic solutions cause oil and gas prices to plummet? We don’t know, but if you hold onto mineral rights long term that is the risk you are taking.
Never Sell Mineral Rights? Consider your options
For each individual the decision to sell mineral rights is a personal one. We would encourage you to strongly consider your options. The common advice to never sell mineral rights is not as relevant today as it was in the past. You may be holding onto an asset that is worth substantially less in the future. If you want to sell mineral rights we can help. Our goal is to help each mineral owner get maximum value when they sell mineral rights and ensure a smooth closing process.
The more information you can provide about your property the better! We can give you a better idea about the value of selling mineral rights if you provide more information. The most important thing we need is for you to answer the questions and provide your state and county.
If you have the required documents to list, providing those is extremely helpful!
Absolutely not! When you inquire at US Mineral Exchange we will not be putting any pressure on you to sell. We will help answer any questions you have whether you are interested in selling or not.
At US Mineral Exchange, we take privacy very seriously. We will NEVER sell your information or use it without your consent. When you send us documentation or tell us about your property, that information does not go outside our company without your consent. Even when you list a property for sale on our website, we strictly control who has access to the information about your listing so that only legitimate buyers will be able to see property details.
Many mineral owners make the mistake of getting an offer and quickly selling. They then accept an offer far below market value because they felt pressure to sell. There is nearly always a better price available.
We have two types of listings available to help you sell mineral rights for the best price:
Auction Listing – Our auction listings are for just 7 to 14 days. If you have an offer in hand you are seriously considering, an auction listing is a quick way to get a better offer and ensure a smooth closing process. Learn more about our auction listings.
Standard Listing – Our standard listings run for 30 days. These listings are ideal if you don’t have an offer in hand or you are not in a rush to sell. Learn more about our standard listings.
The reason that so many mineral owners decide to sell mineral rights at US Mineral Exchange is access to our large network of mineral rights buyers. Our goal is to help you get top dollar for selling mineral rights by getting your property in front of a huge audience of buyers. This allows buyers to compete against one another which ensures you get fair market value for selling mineral rights.
There are absolutely no cost to list your property. When you locate a buyer by listing your property with us, we are paid a commission directly by the buyers closing agent. This means you never have any out of pocket expenses ever. We only get paid if we can get you a better price than the current offer you have in hand.