Selling Mineral Rights in 2024

If you are considering selling mineral rights in 2024, taking a few minutes to read this guide will help you make an informed decision.  We will explain how to sell mineral rights and ensure you sell for maximum value.

There are a lot of things to consider. We are going to break down everything you need to know to sell mineral right in Texas.

While timing the market is impossible, it’s important to keep an eye on a few things as you consider when to sell mineral rights. For most clients, the decision to sell is personal and the best time to sell is when you’re ready.

In Texas, operators can profitably drill new wells in many places when oil prices are $50/barrel or higher. Depending on the location and type of gas produced, the breakeven price for natural gas is between $1.50 and $2.00/MMBtu.

What this means is that when oil is $50/barrel or higher, and natural gas is $2.00/MMBtu or higher, it is an ideal time to sell mineral rights. Due to tax advantages and your personal situation, selling when prices are lower can also make sense for some clients.

As we move into 2024, there are a few things we are keeping an eye on. The jobs market has started to soften slightly, but still remains strong. Many have been expecting a recession, but a strong job market and consumer spending have prevented a recession. A strong American consumer is important to the oil market as higher consumer demand and discretionary spending are what drive the US economy, and the demand for oil. If a recession does occur due to job losses and weak consumer demand, this may impact the oil and gas market.

In our opinion, the first half of 2024 will be an interesting time as the Fed keeps interest rates high to reduce inflation. These high interest rates are likely to start having adverse effects on many businesses and we may eventually see a weak jobs market push us into recession. For now, the Fed is successfully walking the tightrope, but we see a lot of macroeconomic risk entering 2024 which may have an impact on the oil and gas market.

There is currently very strong demand from mineral buyers. Oil and gas prices remain strong and well above breakeven pricing for operators. With inflation still high, we are seeing mineral buyers continue to aggressively purchase mineral rights rather than hold cash. Historically, now is an excellent time to sell.

Deciding whether to sell mineral rights is a personal decision.  There is no right or wrong reason for selling mineral rights.

There are two very important reasons you should sell mineral rights in 2024 that every mineral owner needs to consider:

If your mineral rights represent a significant portion (more than 10%) of your net worth, it may be beneficial to consider selling them to diversify your investments.

Why?  Most people own mineral rights in a single location.  If you get stuck with a bad operator, if new wells are drilled next to your acreage that start depleting your oil and gas, if a dry hole is drilled in the area, if a new technology makes your acreage less desirable, etc etc etc you may find the value of your mineral rights going down dramatically.

The old adage to “never sell mineral rights” is terrible advice.  For many, it makes sense to sell mineral rights and put that money to work in the stock market.  You’ll be better diversified and you can start earning dividend income that compounds the value of your investments.

Let’s say you are well diversified and your mineral rights are just a small portion of your overall retirement plan / net worth.  Deciding to keep your mineral rights might make sense.

If you inherited mineral rights, you should likely sell mineral rights even if you are diversified.  There is almost no scenario where you should keep mineral rights if you inherited them due to tax savings.

Why?  The reason is that you will pay more in taxes collecting royalty income than selling mineral rights and paying capital gains.  In addition, if you inherited mineral rights, you get a step-up basis, which is extremely important to understand.  What this means is that you only pay capital gains tax rates on a portion of the sale price.

Our tax article breaks down the tax implications of selling mineral rights in Texas.  If you inherited mineral rights, it nearly always makes sense to sell and take advantage of your step-up basis and capital gains.

If you own valuable mineral rights in Texas, you may receive offers to sell them in the mail or by phone.  If you are in a really good location and you have a lot of royalty income, you may be getting offers to sell minerals on a weekly basis.  Some mineral buyers will even take the time to locate your phone number and call you directly.

There are four types of mineral buyers who will contact you with letters in the mail:

• Low Ballers:  If you have ever received an offer in the mail that was substantially lower than the other offers, this was a low ball offer.  These mineral buyers are hoping that you’ll sell below market value.  They may attempt to make the process appear easy in order to convince you to sell below market value.
• Teasers: Some mineral buyers will throw out teaser offers.  These offers use language like “Up to $30,000 acre in your area.”  Any time you see the words up to this is not a real offer.  This is a buyer who simply wants you to see a large number and pick up the phone.
• Flippers:  These “mineral buyers” are not actually buyers.  In fact, most do not have any cash at all.  Their goal is to put you under contract at any price, then find someone to pay a higher price.  It’s important to understand that these flippers will misrepresent themselves.  They will tell you point blank they are buyers.  At the very end they will bring in a “partner” who is the actual end buyer.  If they do find you a buyer, you sold way below market value. If they don’t find you a buyer, you may have spent time and resources on the process without achieving anything.
• Quality Buyers:  A very small percentage of offers you get in the mail are from reputable buyers.  Some very high quality buyers do send offers in the mail.  Well over 95% of the offers you get in the mail will not be high quality buyers.  More importantly, only a very small percentage of quality mineral buyers send letters in the mail.  Sending letters is time consuming and not cost effective.  Most high quality mineral buyers rely on Texas Royalty Brokers to locate deals and bring them to market where they can bid on them.

If you are getting offers to sell mineral rights in Texas, do not accept any offer until you get competitive bids.  A lot of mineral buyers will compare a few offers they got in the mail, and take the highest offer.  This is a huge mistake.

Just because you have one offer that is higher than the other offers does not mean it’s a good deal.  There are thousands of high quality mineral buyers who want to make a bid.  You will get a much higher price when you create a bidding war for your mineral rights.

The number one mistake mineral owners make when selling mineral rights in Texas is not using a mineral rights broker.  Without an experienced broker who knows the industry, you simply can’t reach enough buyers to get a fair price.

Selling mineral rights on your own without the assistance of a broker makes it nearly impossible to reach enough buyers to get a fair market value for your rights. Why?  There is no competition.  You’re allowing 2 or 3 mineral buyers to compete for you minerals when there are thousands of mineral buyers.

Finding an offer to sell mineral rights is easy.  Finding the absolute highest possible price from a reputable mineral buyer is the hard part.

A lot of mineral buyers in Texas have made a fortune reaching out directly with offers.  Most mineral owners will talk to 2 or 3 mineral buyers.  They negotiate the best price they can, and then sell.   These mineral owners don’t realize that they could have walked away with substantially more had they simply gotten competitive bids.

Let’s say you received an initial offer for $1,200,000 and were able to negotiate it up to $1,300,000, and had other offers for $1,000,000 or less. It may seem like you got a good deal, but it is important to remember that competition from other buyers could have increased the value even higher.

What many mineral owners don’t realize is that competition could have increased the value even higher.  If you found an offer for $1,300,000 on your own with a just a handful of buyers, imagine what the price would be if thousands of mineral buyers had an opportunity to bid?

It is extremely common for mineral owners to come to us with an offer they have already negotiated higher.  We’ll then hit the market and typically see a 10% to 30% price improvement over their existing offer.   If you get a 20% price improvement on a $1,300,000 offer, you just made an extra $260,000!

Competition is crucial when selling mineral rights in Texas.  You absolutely must get competitive bids or you are nearly always selling below market value.

If you are considering selling your mineral rights in Texas, let us help you get the best price.  The team at Texas Royalty Brokers has been helping mineral owners get maximum value for selling mineral rights since 2012.

At Texas Royalty Brokers, we focus exclusively on high value mineral rights sales in Texas.

Focusing on high value deals in Texas allows us to provide clients with the following benefits:

• Competitive Bidding:   Did you know that using a mineral rights broker will nearly always result in 10% to 30% higher prices? After taking commission into account, our clients saw an average increase of 10% to 30% over existing offers they found on their own.   How is this possible? When you receive a few offers in the mail or solicit a few bids on your own, you are typically contacting less than 1% of the mineral buyers in the market. To maximize value, your mineral rights need to be listed in a competitive environment where thousands of buyers are competing to pay you the highest price.
• Active Marketing:   A lot of mineral brokers will list your property, send an email to their buyer list, and hope for the best. This is not going above and beyond to maximize value for clients. At Texas Royalty Brokers we will actively market your mineral rights leading to better prices.    We accomplish this by custom tailoring our marketing approach to each client. When we list a new property, our team researches the mineral buyers in the area and sends physical letters to buyers. This approach ensures that every possible buyer who may have an interest is aware your mineral rights are available for sale.
• Commission Rates:   In the mineral rights industry, it’s common for brokers to charge 6% to 10%. At Texas Royalty Brokers, we offer the most competitive commission at just 5%. For clients who own mineral rights valued at $2.5MM or higher, our scale-based commission means the effective commission rate will be less than 5%.  Our focus on Texas high value properties allows us to be more efficient than other brokers. We pass those savings along to our clients. Not only will you get a higher price working with our company, but we also earn a lower commission than other brokers.

Our team is eager to answer your questions and help you better understand your mineral rights.

If you have any questions or are ready to discuss selling your mineral rights in Texas, please use our contact form and one of our team members will respond promptly.