Selling Mineral Rights: What to Keep in Mind

Given the natural gas industry’s current slump and the economic downturn associated with the global pandemic, many property owners may be looking to sell their mineral rights now or in the near future. After all, royalties have dropped precipitously and have led some property owners to feel as though leasing their land may be more trouble than its worth. But before signing away those rights, property owners should be aware of how mineral rights are purchased and the factors that influence the payout for severing mineral rights from the property.

Currently, there are a number of companies, large and small, that are purchasing mineral rights. Generally speaking, these companies offer a lump sum payment today in exchange for the rights to the mineral interests in the future. This means that if or when prices rebound and royalties go up, the purchasing company will be the only party to reap the rewards as the landowner no longer owns the rights to minerals.

For many owners, this requires an assessment of their current financial situations and long-term goals. If the lump sum today would prove more beneficial for landowners and/or if leasing has proven burdensome. then selling may be a good choice. But if a landowner is in an economically stable position and/or has the desire to wait for economic conditions to improve, then retaining the mineral rights may prove to be the better option.

It is important to note, however, that selling when the industry is in a slump may not net a sizable return for the property owner. Current commodity prices heavily influence the amount of money a company is willing to pay for the mineral interests. In other words, low prices for natural gas could translate into low offers for the mineral rights on the market. 

The price of natural gas is not the only factor companies take into consideration, however. Other factors that companies evaluate when offering to purchase mineral rights are:

• Total acreage

• Wellpad size

• Production trends (have the wells produced large volumes?)

• Amount of recoverable gas (how much gas is available?)

For those thinking about selling mineral rights, contacting an attorney may be helpful. The attorney will be able to review the terms of previous or current leases, provide insights about movement in the market, and evaluate any potential offers from companies looking to purchase the rights.

To learn more about the market and for assistance finding an attorney, feel free to contact Corey Young at the Shale Gas Knowledge Hub at cyoung2@washjeff.edu.