Energy Industry (Oil & Gas)/Mineral rights sale/lease

Advertisement


Question
In 1999 I inherited the mineral rights to land in Reeves County, TX (in Section 37, Block 1, H&GN RR Co. Survey, Abstract 360). I do not live in Texas and have little knowledge of the energy exploration business.  I have been learning on the fly, but there is much to learn.  
Since 1999 I have leased the mineral rights to various companies approximately 3 times, usually for $150-200 per acre. Earlier this year I agreed to lease for $2500 per acre and 25% royalty.  Two weeks ago I received an offer to buy my mineral rights for $6000 per acre. My inclination is to strike while the iron is hot.  I am interested in hearing your thoughts and advice about the pros and cons of sale versus lease, fair market price, legal considerations, etc.  
Thank you for your volunteer time!

Answer
Hello Caleb.  Things are hot in Reeves County right now!  A couple of articles you should read about mineral sales by mail can be found on these links: http://recenter.tamu.edu/pdf/1728.pdf, andhttp://www.mineralrightsforum.com/profiles/blogs/mineral-sales-by-mail-covering.  This will give you a brief overview of concerns and what the law requires in these kind of transactions.

The decision to sell minerals is a personal one and is made for various reasons.  For example, $6,000 an acre in Reeves County is a good price, but it's not the best I have seen in Reeves.  I'm sure prices vary depending on where the minerals are located in the County.  One thing is sure though, whoever wants to buy the minerals is banking that it's going to make more money on the minerals over a period of time than is going to be paid to you.  If you sell the minerals, you will lose all rights to future bonus and royalties. If you need the money now, or think that this is the best offer that you are ever going to get and would like a lump sum of cash now, then selling perhaps makes sense in your situation.  If there is a horizontal well about to be drilled on your property, and you own a lot of minerals, then the decision to sell might not make sense.  It's just hard to say because it's such a personal decision.   

You can check whether a drilling permit has been issued for your property by going to the Texas Railroad Commission website, clicking on the online research link, and then checking for drilling permits.  You can also use the GIS map viewer there to look at your property and the surrounding properties to see what's going on. (I checked for you-Cimarex Energy has permitted horizontal locations all around you!).  I would guess that your property may well be the recipient of a horizontal well at some point).  


Good luck with your decision and let me know if you have any further questions.  

Energy Industry (Oil & Gas)

All Answers


Answers by Expert:


Ask Experts

Volunteer


David B. McCall

Expertise

Questions regarding oil and gas exploration and production, the operation and management of oil and gas producing properties, and questions related to mineral ownership, title problems, and oil and gas leases.

Experience

I am Board Certified in Oil, Gas and Mineral Law in the state of Texas. I have more than 37 years of experience in the industry as both an in house attorney for major oil companies and as a partner in oil and gas firms. I am also a mineral owner and receive royalties from oil and gas production. I have extensive title examination experience, and have represented clients in many administrative and court proceedings.

Organizations
State Bar of Texas, Texas Bar Foundation, and Austin Bar Foundation.

Publications
Various state bar seminars on Oil and Gas matters.

Education/Credentials
I have a business degree in marketing from McMurry University, 1971, and a JD degree from Texas Tech University in 1974, where I graduated 17th in my class. Board Certified in Oil, Gas and Mineral Law in 1986.

©2016 About.com. All rights reserved.