Selling Mineral Rights: Nuts and Bolts

Much has been reported in the news lately about companies seeking to purchase minerals from residents, whether or not those minerals have been leased. While a company may offer an attractive up-front, one-time payment to buy minerals, mineral owners should take the time to carefully review all the long-term consequences of such a sale. Here are a few things to consider when faced with this offer:

What is the difference between leasing and selling my mineral rights?

Leasing is a revenue-sharing arrangement in which a mineral owner (the lessor) shares in the proceeds of any minerals produced from his or her property with the lessee for as long as the lease is in effect. In contrast, the sale of minerals involves forever selling the minerals with no future participation in their production. Once the minerals are sold in exchange for a one-time payment, the rights to the minerals are permanently forfeited, resulting in the loss of any future income associated with the production of those minerals.

What if I sell my home?

Surface ownership of real property and mineral ownership are two different issues in Texas. As a result, it is possible to own surface rights and not own the minerals and vice versa. Surface property can be sold to another individual while still maintaining the ownership of the minerals underneath that property. Often, real property value or selling price can increase when the minerals are included or decrease when they are severed. If you plan to retain your mineral ownership when you sell your home, your deed will need to expressly retain these rights.

What are some factors that need to be considered when selling my minerals?

When the price of natural gas is low and there are no or few wells in the unit containing your mineral interest, it can be tempting to sell for the immediate funds, especially in tough economic times when cash is needed and the future production of minerals is uncertain. However, natural gas wells in the Barnett Shale are expected to be productive for more than 40 years, so it is important to consider the potential number of future wells, the potential performance of those wells, the long-term outlook for natural gas prices, the potential for discovery and production of other types of minerals, and the potential legacy that mineral ownership provides your children and grandchildren.

What effect can future technology have on the sale of my minerals?

Other factors to be considered before selling mineral property, such as technological advances, may be difficult to project but can dramatically affect the future value of the mineral rights. Even with current technology, much of the gas in the Barnett Shale remains in the formation after Chesapeake has drilled its wells. The company estimates that only about 30% of the gas in the Barnett Shale is recoverable with today’s technologies. Improved technologies in the future should increase the percentage of unrecoverable gas in the Barnett Shale, which would result in additional and longer-term royalties to mineral owners.

What about the other minerals under my property?

There may be other uses for minerals, aside from natural gas, discovered in the future. If the mineral rights are sold, then the former owner will no longer have the opportunity to receive additional income from the production of the mineral estate.