The decision to sell mineral rights or royalty interests is a personal one. While we do not give financial advice, here are some of the reasons why mineral owners consider selling vs. holding onto mineral rights or royalty interests.
Reasons to Sell
- Risk: There is the risk that no well will ever be drilled or that the value of the royalty payments could be much less than expected. By selling some or all of their mineral rights or royalty interests, owners can mitigate the risk of future non-development or of an unsuccessful well.
- Immediate Cash: Selling your mineral or royalty interest can provide immediate cash to help start a business, pay medical bills, pay off debt, help pay for college, pay for a home remodel, save for retirement, make a donation to charity, or to pay for a much needed vacation.
- Eliminate Paperwork: Owning mineral interests comes with it the need to manage important paperwork and associated costs. From having to negotiate the terms of an oil and gas lease to managing division orders, property tax payments, and understanding depletion allowances, there is a lot to consider.
- Diversification: Selling a portion of mineral interests can help diversify your portfolio. Some mineral owners wish to spread the risk from depleting non-renewable resources to more stable fixed-income investments.
- Simplify Estate Planning: By selling, mineral owners can simplify their estate and make sure their heirs don’t have to deal with the mineral rights probate process and associated time and expense.
Reasons to Not Sell
- Risk: Mineral rights owners with a high risk tolerance may wish to take the chance that something might happen. Some mineral rights owners can tolerate the uncertainty of leasing their minerals and hoping that a well will be drilled and that it will produce for a long time.
- Leasing: When mineral rights are leased, the property owner receives a lease bonus payment. This gives the operator the option to drill a well over the specified time period. While the lease bonus may sound good, failure to negotiate a good lease can leave a lot of money on the table.
- Time: If you are willing to hold onto your mineral rights for decades and you don’t need money for anything now, not selling might be the way to go. You can decide to sell at a later date if your financial position or risk tolerance changes.
- Royalties: If you own producing minerals, you may enjoy getting a check in the mail each month. Since oil and gas is a depleting resource, the checks will slowly decline over time until they stop due to lack of production. If these royalty checks already meet your financial needs then you may wish to hold onto your interest.
- Not Happy with Current Value: If the offers you have received to buy your interest don’t meet your expectations, then you may not want to sell. While there is no guarantee that you will get a future offer that is higher (due to higher commodity price or the drilling of a successful well on your property), remember that you are in control.
Contact Silverheels Investments
Whatever your decision, make sure it is an informed one! If you would like to receive a free no-obligation evaluation of your property’s value, please contact us today.