We are often asked about factors affecting mineral rights value in Texas. Mineral owners want to know about the value of mineral rights, but they need to understand what factors affect the value. The mineral rights value in Texas is just like everywhere else in the country, there are numerous things that will change the value. We’ll explain each factor that affects mineral rights value below and help you understand why it plays a role.
Factors Affecting Mineral Rights Value
As you read through each of the factors affecting mineral rights value in Texas below, it’s important to understand that all of them play a role. Some of them play a less important role in the value. The only way to find the value of mineral rights is to sell mineral rights through a company like US Mineral Exchange that will put your property in front of buyers and see what they can pay. Here is a list of factors affecting mineral rights value:
Oil and Gas Prices – Many mineral owners overlook the price of oil and gas, but this arguably one of the key drivers of mineral rights value. With producing mineral rights (royalties), the value of royalties is directly affected by the price of oil and gas. When oil and gas are extracted from the ground, the amount that is extracted is multiplied by current prices (very roughly) to determine how much you get paid. When prices go up, you will generally receive more. When prices go down, you will generally receive less. Even if you own non-producing mineral rights, the value of your mineral rights in Texas will fluctuate based on oil and gas prices. When prices are higher, royalty buyers can take more risk and pay higher prices!
Surrounding Production – Another one of the factors affecting mineral rights value in Texas is the surrounding production. If your mineral rights are surrounded by wells that produce a substantial amount of oil and gas, there is a good chance your mineral rights will too! If you are surrounding by wells that are not producing very well, your mineral rights will generally be worth less because it’s assumed your mineral rights won’t produce well either. It’s important to note that no 2 locations (even next door to each other) are exactly the same. You could be right next to a great well and your property is worth significantly less. You could also be next to bad production, but your mineral rights are worth a lot more!
Operators – Different operators are willing to take on different levels of risk. You may get a large lease bonus from one operator who is flush with cash and being aggressive, but that doesn’t mean every operator is willing to pay that price.
Timing – One of the hardest things for mineral owners in Texas to come to terms with is that timing plays a key role. We constantly hear a mineral owner say something like “I got offer $1,000/acre 5 years ago” or “I know someone who was paid $1,000/acre last year”. The reality is that even a few months can have a huge impact on the value of mineral rights. Oil and gas prices can fluctuate quickly which makes pricing change quickly!
Buyers – If you are selling mineral rights in Texas, the buyers in the market when you decide to sell can make a huge difference on the value. We’ve seen many situations where a buyer gets multiple offers that fall in the $500/acre (example amount) range, but a single buyer in the market thinks it’s worth $750/acre. If that single buyer is willing to pay a higher amount, that’s the true market value. However, if that buyer isn’t in the market, the true market value is only $500/acre. An aggressive buyer with lots of cash can significantly alter the value of mineral rights.
Common Mineral Owner Mistakes about Value
There are a few common mistakes we see mineral owners make over and over about the value of mineral rights. Since there are so many factors affecting mineral rights value in Texas, it’s easy for a mineral owner to ignore those factors and make their own judgement on the value. If you own mineral rights, here are some of the key mistakes to avoid.
Owning the Best – Many mineral owners believe they own the best mineral rights with almost no basis to believe this. They assume that their mineral rights are in the best possible location and worth the highest possible price. The reality is that your mineral rights are worth what the market is willing to pay for them and the market sets the value.
Rumors – Another common pitfall for mineral owners is to believe every rumor they hear. We can’t count the number of times we hear someone say “I heard that mineral rights in La Salle County are going for $5,000/acre right now”. Mineral owners have to understand that that highest price you hear does NOT mean that you mineral rights are worth the same. In addition, that $5,000/acre price you heard may very well be a rumor that’s been circulating with no truth at all!
Neighbors – Similar to rumors, we constantly hear a mineral owner say “My neighbor got $5,000/acre so I want at least that much”. Does you neighbor own the same exact acreage size? Did your neighbor have a better lease than you? Did your neighbor sell yesterday or 3 years ago? All of the factors affect the value! No two properties are the same. You can use the amount your neighbor got as a rough idea, but it’s just a single piece of information.
Single Buyers – Probably the worst mistake a mineral owner makes about their value is selling to a single buyer. If you want to sell mineral rights, do NOT get a single bid and then sell it to them. You want to get your property in front of a large audience of buyers and see what the market can really pay you for your mineral rights. When you list with a service like US Mineral Exchange, you can feel confident you’re getting a fair market value for your property.