Mineral Rights Market Update
Before we talk about estimating mineral rights value, it’s important to understand where the market is. With the introduction of Coronavirus, the oil market took a plunge. The demand for oil quickly dried up as people were no longer traveling for work or pleasure. The decline was so aggressive, that we even saw negative oil prices for a shot period of time.
What does this mean for mineral rights value? Unfortunately, it means that mineral buyers are taking a much more conservative approach. Some mineral buyers are sitting on the sidelines right now. Others are being more aggressive in purchasing, but offering lower prices.
If you want to sell mineral rights right now, you can expect to get a lower price than what you would have received in 2019.
Mineral rights value will go up as the price of oil goes up. If you are in a position where you need to sell now, consider filling out the free consultation form at the bottom of this page. We can help you determine the best way to sell. We can also help you understand the potential value of your mineral rights.
How to determine value
When you sell your home, the transaction is recorded in public record including the sales price. This allows companies like Zillow to gather this information and let you search through it. This lets you quickly get an estimate about what your home might be worth.
With mineral rights, this information does not exist! The sales are all recorded as public record so you can see who owns a property, but the sales price is not recorded with the sale. The deed will simply say, “$10 and other good and valuable consideration”. This keeps the prices mineral rights buyers pay a secret.
In addition to the fact that there is no public record of the sales price, even if there were, you wouldn’t be able to rely on it. The value a mineral rights buyer places on a property swings wildly from buyer to buyer. Two buyers can look at the same property and one will believe it’s worth $100,000 and another believes it’s worth $1500,000. That’s not an exaggeration!
Below we will provide you a good estimate of mineral value. However, it’s important to understand that there is no way to estimate mineral rights value accurately! We can give you a rough ball park idea, but the actual value you would receive for selling mineral rights would be different.
The best estimate of mineral rights value is a legitimate offer. When you get a legitimate offer to sell, you have at least one data point that gives you the current market value. The problem is that there are thousands of mineral buyers. Your goal is to find that one mineral buyer who wants to pay you the highest price!
The rule of thumb for mineral rights value in Texas
So how do we figure out a mineral rights value rule of thumb? We have spent years talking to mineral owners and we have figured out a good rule of thumb for mineral rights value.
Non-Producing/Non-Leased Properties: If your property is NOT leased and NOT producing, the value is likely between $0 and $100/acre. If your mineral rights in Texas have not been leased for years, there is a good chance they are worth $0. If they have been leased in the last 10 to 15 years, you may find someone who wants to buy mineral rights for speculation. In that case, you may get $100/acre or less.
Leased Properties (Not Producing) – If your property is currently leased but NOT producing, a good mineral rights value rule of thumb is 2x to 3x the lease bonus amount. For example, if you were leased for $1,000/acre, you could estimate the value at $2,000/acre to $3,000/acre when you sell mineral rights. Keep in mind that this is a very rough estimate. The real value could be far above this level or you maybe even lower. You won’t know until you sell mineral rights in Texas.
Producing Properties: If you are currently receiving oil and gas royalties income each month, we can get a much better estimate of the value. Unless the property is in the first 3 years of producing or in the last 5 to 10 years of it’s useful life, we can estimate value.
A good mineral rights value rule of thumb for producing properties is 4 years to 6 years times the average check you receive. Take the most recent 3 months of check stubs, find the average, and then enter it in the first box below.
This is your mineral rights value rule of thumb for producing properties:
When you use the calculator above to estimate mineral rights value in Texas, keep in mind that this does not take into account future upside. We are only looking the current value based up on cash flow. Your mineral rights could end up being worth substantially more than this calculator would suggest.
If there are more wells left to be drilled on your property, your mineral rights could have substantially more value.
Factors Affecting Mineral Rights Value
We mentioned above that a good rule of thumb value for mineral rights can’t be relied on. Why? There are simply too many factors that play a role in mineral rights value.
Let’s look number of wells drilled as an example. In this example we will assume 640 acre spacing. Let’s pretend only 1 well has been drilled.
If you have only 1 well drilled on 640 acre spacing, there is easily room for 5+ more wells. This means that your mineral rights could be worth 5x the amount our calculator is showing! Of course, the question is when will they drill those 5 new wells. Buyers will account for the time value of money and adjusted offers accordingly.
As we can see with just one factor playing role, the value can swing wildly.
Some other factors that play a role:
- New Permit – If a new permit was just filed on your acreage, the value will go up dramatically.
- Oil Prices – If oil prices plummet like they are now, the price can go down dramatically.
- Nearby Production – If a new well is drilled next door that performs well, your mineral rights value could go up dramatically.
It’s important to point out that holding mineral rights is a gamble! There are so many factors that change the value it’s impossible to keep track. Unless you have a highly diversified portfolio for retirement, selling mineral rights can make sense. There’s simply too many variables that can swing against you.
Offer to Sell Mineral Rights in Texas?
If you want to know the mineral rights value rule of thumb because you have an offer, you’re not alone. We talk to a lot of people who get an offer to sell mineral rights and have no idea if it’s fair.
Keep in mind that even if the offer you have falls in line with the estimate above, it still may not be the best offer. There are literally thousands of buyers out there. To ensure you get the highest possible offer, it’s extremely important that you get multiple competing offers. This allows you to make a smart decision.
Selling to the first offer or two you get is almost never the highest price possible.
If you have an offer to sell mineral rights in Texas and you want to know if it’s fair, we recommend you list your property at US Mineral Exchange. Doing so will allow you to determine if the offer is fair.
By listing your property online it will be seen by thousands of buyers. This creates competition for your property driving up the price and putting the most cash in your pocket.
If you own mineral rights in Texas and you have questions, fill out the free consultation form below. We are happy to help answer your questions and help point you in the right direction.