Selling mineral (oil) rights in West Texas.
March 8, 2017 5:07 PM   Subscribe

I inherited mineral rights on two pieces of property in West Texas. I retire in about 7 years. Not sure which to sell, or not sell either. More after the drop.

Both properties are about 5 acres of mineral rights.
Property A has an active vertical well on it that came in about 2 years ago. I get about 250.00 a month in royalties. It has a second "parcel" where another well could conceivably go.
Property B is in an adjacent section to the west, it does not have a well or any permit to drill one in process.
East of property A the wells are more dense, west of property A they are less dense.
I've gotten a pretty good offer to buy one or both.
To my way of thinking, A produces some revenue but will diminish in value as the oil is extracted. The other parcel could be drilled on, but wells are not as dense there as further east.
Property B? Who knows if it will be drilled on, probably eventually, but no telling when.
The offer is for about equal dollars for each property.
Retirement is about 7 years out, I hope, when Medicare kicks in, assuming it still exists.
Selling one of them would let me get in a position to have the house paid off in that time.
I have a 11 year old child, all I own will go to her one day. I need to not be making house payments in retirement while she is in college, though I have a rental property that about covers the mortgage on my house.
Do "proven reserves" (an active well) increase value? My sisters sold their parts a few years back, they got about half what I have been offered - from the same buyer that I am talking to. I see Exxon is planing more refining capacity in S Texas, which could be driving the sudden flurry of interest I have been seeing.
Which one to sell? Both, one, neither? I consider holding on to some part of them essentially a retirement investment. If it is a wise investments, I don't know, but I doubt the sales value of the rights is going to go down.
posted by rudd135 to Work & Money (1 answer total) 2 users marked this as a favorite
 
Hey, I own some of these in East Texas. Congratulations! The value of my property seems to just keep going up. The wells that were producing ~15 years ago are still producing. The offers (and taxes) go up every year. Obviously the price of oil also factors into this, as well as new drilling methods. East Texas ain't even fracking territory like West Texas is.

I get unsolicited offers to buy mine all the time in the mail. Some are specific, some are random junk. I've been advised by both producers who lease from me and other owners that these offers are always lowball, never to take them. I'm unclear on how I'd actually sell my rights though, or even value them. The property tax valuations aren't much help.

I asked an expert for advice once and they said 4x annual income was a good rule of thumb. That'd put a value of $12,000 on your producing property and $0 on the non-producing one. OTOH that valuation method totally discounts speculative value of future production. (Or alternately, risk of depletion). Also based on my experience 4x seems awfully low, but maybe it's been a good decade.

The non-producing property is harder to value. Honestly unless you have specific information or do a lot of research, any buyer is going to have better info than you on its value. One thing to remember is that if you do ever find someone to produce that property, you'll get a hefty one time lease-signing bonus cash payment. I've never figured out how big this really is, but it's way more than one year's royalties.

BTW standard royalty rates are 1/6 of production value, but producers will sometimes offer you only 1/8. Once the lease is signed though it typically lasts for as long as the property is under production.

There's an organization called NARO that could give you more information.
posted by Nelson at 6:14 PM on March 8, 2017 [1 favorite]


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