Selling Oil and Gas Royalties in 2020
The key to selling oil and gas royalties for the highest possible value is competition.
You want to locate the buyer who is willing to pay the highest possible price for your producing oil and gas mineral rights. If you want to maximize value when you sell oil and gas royalties, this guide will help explain everything you need to know.
Sell Oil and Gas Royalties for Maximum Value
As you start trying to figure out how to sell oil and gas royalties, you’ll quickly discover that there are thousands of oil and gas royalty companies offering to purchase your oil royalties. How do you know which company to select? How do you know you are getting a good deal?
As a mineral owner, your primary goal is to sell oil and gas royalties for the highest amount possible. You want to put as many dollars in your pocket as you can when you sell oil royalties.
To maximize value when you sell royalties, the key is to get your property in front of a large audience of mineral rights buyers. The reason is that when selling oil royalties interests in front of a large group of buyers, it will allow these buyers to compete against one another. When buyers compete against one another it drives up the price which ensures that you get the maximum market value when selling oil royalty interests.
When selling oil royalty interests a lot of mineral owners do it themselves. They will gather up a few offers, select the highest, negotiate it up a bit, and assume they got a fair deal when selling royalties. You will almost never get fair market value this way.
If you are selling oil royalty interest you may not realize there is nearly always a better price.
Consider the example we show below. You may gather up a few offer, negotiate for $4,000/acre and assume you got a deal because it’s higher than your other offers. You barely scratched the surface when selling gas royalty interests!
By listing at US Mineral Exchange you can quickly get your oil royalty interests in front of thousands of mineral buyers.
The example above perfectly illustrates what happens all the time. Mineral owners lose out on thousands of dollars assuming they found the best deal. Over 95% of mineral owner who list at US Mineral Exchange walk away with more money.
Estimating Oil and Gas Royalties Value
A lot of mineral owners ask us about estimating oil and gas royalties value.
When you sell oil and gas royalties, you want to at least have a rough idea of how much your mineral rights are worth. There are many factors that affect the value of oil and gas royalties.
Since oil and gas royalties produce income we can help you get an estimate of how much your oil royalties are worth. To get an estimated value of oil and gas royalties, the only thing you need to know is the average amount you receive each month. Take the most recent 3 months check amounts and come up with the average monthly amount you receive.
Enter that in the first box below:
As you can see, you can expect to get anywhere from 4 years to 6 years times the average monthly amount. Keep in mind that the value of oil and gas royalties could fall outside this range for a number of reasons. There are many factors that affect the value of oil and gas royalties.
This is why placing your property on the market at US Mineral Exchange is important. It allows you to find out what the market will really pay when you sell oil and gas royalties.
What is an oil and gas royalty interest?
An oil and gas royalty interest is a way to describe your share of the oil and gas beneath the surface.
To look at a simple example, you may have 10 acres of mineral rights ownership. The term “mineral rights” really refers to the right to oil and gas beneath the surface.
During the first two phases of ownership, the industry typically refers to this as “mineral rights ownership”.
Once your mineral rights reach the third phase, you now have an oil and gas royalty interest. Nothing changed about your ownership, but the industry calls producing minerals an oil and gas royalty interest rather than mineral rights ownership.
It is important to point out that these terms are thrown around loosely. Someone may refer to your ownership as “mineral rights” even when producing royalty income, and they may also refer to it as a “royalty interest” even when it’s not actually producing any royalty income yet.
Reasons for Selling an Oil and Gas Royalty?
There are many reasons to sell royalties. It really comes down to your personal decision. Figuring out whether to sell oil and gas royalties can be challenging for some.
Here are some of the most common reasons for selling an oil and gas royalty:
- Taxes: You will save substantial money if you inherited mineral rights by selling your oil royalties. Our tax article explains everything.
- Diversification: Most oil and gas royalty interests are owned in a single location. This creates a lot of risk for you. What if nothing happens for 10+ years or 20+ years? By selling oil royalty interests you can collect your money now. Those funds can be used to diversify into a total market ETF giving you income and diversification.
- Control: If you own a rental home you decide what to do with it. When you own an oil royalty interest you are just along for the ride. The operator makes all the decisions and you have no control at all.
- Oil and Gas Prices: The amount you are paid for you oil and gas royalty interest is directly related to the market price of oil and gas. If gas prices drop 50% you gas royalty interest payments will also drop by 50%. If you sell royalties when oil and gas is lower you can expect lower pricing.
- Short Term Need: There are a lot of difficult situations that come up in life. Unforeseen medical bills, a car accident, lost job, etc.. You can collect a lump sum by selling oil royalty interests to meet your financial needs.
- Medicaid: Some royalty interest owners need to sell royalties due to medicaid. In some states you may not be eligible for Medicaid depending on the amount of your oil royalty income. Selling oil royalty interests can make sense because it allows you to qualify for medicaid.
Every situation is unique. If you have questions about selling oil royalty interests please reach out to us. We can help you objectively work through whether selling makes sense for you.
Selling a Working Interest in Oil Well
If you have a working interest, this means that you are an owner in the oil and gas drilling process.
The easiest way to describe a working interest is to think of it like being an owner in a company. If you are 50/50 owner in a pizza joint, you are responsible for 50% of rent, 50% of costs, 50% of revenue, and 50% of expenses.
While the math is more complicated than this, a working interest is generally the same thing.
If you have a working interest in an oil well you are an owner. You take substantial risk alongside the other others in the well. Each month you get your share of the revenue, but you are also responsible for paying your share of expenses. In the beginning when a well is drilled, your revenue will easily cover expenses. As time goes on and revenue declines, your expenses will eventually be higher than revenue.
Selling a working interest in an oil well can be a challenge. A lot of working interest owners wait until their working interest is a liability.
If your expenses each month are more than your revenue, you owe money every month. Put yourselves in the shoes of a buyer. Do you want to buy a working interest that will cost you money each month? Of course not.
The only way you can sell a working interest in an oil well is if you are cash flow positive. Ideally, you should be making $500+ net profit after expenses. Anything less, and the risk to the buyer is too high.
Selling Oil and Gas Leases
If you are thinking about selling an oil and gas lease, you need to define what you are selling. The term “selling an oil and gas lease” gets confusing because it can be done in two ways.
If you paid a lease bonus to someone and signed a lease agreement with them, you are the lessor. This means you “own” an oil and gas lease. When selling an oil and gas lease, you would be selling the “right to drill” to someone based on the lease you signed.
As an example, you may have leased a mineral owner at 18.75% for $1,000/acre. You may turn around and find an operator who wants to drill there. They may pay you $2,000/acre for a 20% lease on the same property. You just created a 1.75% ORRI and collected $1,000/acre for selling an oil and gas lease. Buying and selling oil and gas leases is not common unless you are an industry expert.
The more common way of selling an oil and gas lease, is selling leased mineral rights. In the chart above, phase two ownership is when you have mineral rights that are leased but not producing royalty income. When you sell an oil and gas lease, you are really just selling mineral rights that are leased but not producing.
Generally speaking you will sell oil and gas leases (mineral rights that are leased) for about 2x to 3x the amount you were paid for a lease bonus.
How to Buy Royalty Interests in Oil and Gas
Before we talk about how to buy royalty interests in oil and gas, you should know that this is a difficult industry to enter. Oil royalty interests are not like other types of assets. It is not as simple as looking up the value on Zillow, then buying lower.
If you want to buy royalty interests in oil and gas, check out our oil and gas royalties for sale. We are constantly updating our oil and gas royalty interests for sale.
How to Sell Oil and Gas Royalties
If you want to sell oil and gas royalties for the highest value, we can help! Figuring our, “how do I sell oil royalties” doesn’t have to be a challenging problem.
By listing the property with us, you will get your property in front of a large audience of oil royalty buyers. These buyers will compete against one another to pay you the highest price. You will typically have multiple offers to consider when you sell oil and gas royalties at US Mineral Exchange. We’ll also be available to help answer all your questions.
Do you already have an offer in hand that you are seriously considering? You can auction mineral rights in just 7 to 14 days and quickly get a better price.
To get the process started, fill out the form below. Please provide us with as much information as you can about your property.
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.
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