Times Are Tough, What Should You Do?
As I’ve written time and time again over the last year or so, times are tough for oil and gas mineral owners in West Virginia, Ohio, and Pennsylvania. Is selling your oil and gas minerals a good option for you?
The oil and gas lease market has dried up as competition has all but disappeared and producers are increasingly seeking to lease only what they “need” in the near future. Many landowners have oil and gas acres that can be leased but find that there is no interest “at the moment.” And, even if there is interest in leasing, oil and gas bonus and royalty rates remain low (historically for the West Virginia and Ohio Marcellus and Utica shale), and are trending in the wrong direction for oil and gas lessors.
Things aren’t much better for oil and gas lessors who are receiving royalties. Just this month (December 2020), I’ve seen royalty statements showing that gas is selling for as low as $0.48/MCF. That’s a far cry from the ~$3.00/MCF we saw in 2014, not to mention the more than $10/MCF gas was selling for at the beginning of the Marcellus and Utica shale booms. Royalty payments obviously suffer as a result. Times are tough if you have oil and gas in production and are receiving royalties.
Faced with these conditions, many landowners have been contacting my office seeking to sell their oil and gas minerals. They either believe that they’ll “never” receive royalties and finally want to cash out or are receiving such low royalty checks that it’s simply “not worth the hassle.” So, if you’re thinking about selling your oil and gas minerals, what should you do?
Know Your Goal!
When a landowner contacts me to sell their minerals, my first question is always “why?” Sometimes people are taken aback by that question. What I always say is that it’s my job as an oil and gas lawyer to guide my client and provide advice, so they can make the best decision for themselves. I can’t do that without knowing why you want to sell your minerals.
If you want to sell your oil and gas minerals because you have medical bills to pay or you’re going to lose your home, that’s a compelling reason to sell your oil and gas minerals. Long story short, if you need to raise money, selling your oil and gas minerals is likely a good option for you. I don’t need to know your personal details. I just need to know your “why” so I can provide advice as a lawyer and make sure you’re making a fully-informed decision.
On the other hand, if you’re frustrated by not receiving royalties yet, that you simply can’t lease at this moment, or some similar reason, it probably isn’t a great idea to sell your minerals. It’s simple business 101. An oil and gas mineral buyer wants to buy at a discount of what the oil and gas minerals would be worth after full production. If you don’t sell, you’ll get that full value eventually. If you sell, you very likely won’t. My hypothetical advice to someone in this camp would likely be to not sell (though there have been exceptions). Sometimes, a client will still want to sell. However, many times a client will decide not to sell after hearing the results of my research. While I don’t receive any fee or compensation in that event, that’s OK! My job is to act in the best interests of my clients, and I take that obligation very seriously. I can be reached at (304) 845-9750 if you want to talk about your situation.
Research, Research, Research!
Just because you’ve decided to sell your oil and gas minerals doesn’t mean that it is a good option for you. Once a client has decided to sell, my next step is to research the actual oil and gas minerals for sale. Is there a lease? What are the lease terms? What is the royalty rate? Can the lessee take deductions from royalties? Is the lease expiring soon or coming up for an extension? Are there royalties being paid? What are the royalty statements showing? Sometimes, it’s as simple as reading the lease and sometimes it’s not.
More importantly, and where my years of experience give me an advantage for my clients, is the status of the oil and gas minerals. By status, I mean when is development likely to happen? I use a variety of resources to make an independent determination as to possible development timeframes. I utilize a variety of public resources from WV DEP, Pipeline Plus, county GIS mapping, county recorders, and more. Perhaps more importantly, I contact people within the industry who can help me obtain non-public information and “connect the dots” provided by publicly-available information. Moreover, I’m constantly representing landowners selling oil and gas minerals, so I have knowledge of the market from constant and ongoing negotiations. This is knowledge that you cannot obtain by searching google.
Research is CRUCIAL to any oil and gas mineral sale. I can’t stress that enough. My research and years of experience selling oil and gas minerals for clients allows me to estimate an expected price range for the oil and gas minerals. If you have 18% no deductions lease on 50 acres that are primed for development in the next couple of years, it’s going to fetch more than the guy a ridge or two over that has a 16% deductions lease on 5 acres with no near term likelihood for development. You might be able to expect $4,500-5,500/acre while the other guy might only able to expect $2,500-3,000/acre. It’s three parts science and one part art. Many more times than not, my estimates prove to be accurate.
So, Is Selling Your Oil and Gas Minerals a Good Idea for YOU?
When my clients receive my advice and estimated oil and gas sale price, it’s time to answer that question! Is that something within that sales price range something you’re willing to sell for? If so, I can begin reaching out to the oil and gas mineral buyers who (1) are going to be most interested in your acreage; (2) are NOT brokers/middlemen but legitimate buyers; and, most importantly, (3) pay the highest prices for oil and gas minerals. I provide all the information the buyers need, solicit hard and fast offers, and negotiate the very best deal. My clients are informed every step of the way and make the ultimate decision to sell or not sell once I feel as if I have the very best offer in hand.
If not, I will still start the process of soliciting offers from legitimate oil and gas buyers. Maybe my estimated price range is wrong (I’m not perfect!). Maybe there’s an oil and gas buyer out there that just sees your acreage differently than other buyers and is willing to pay significantly more. You don’t know if you don’t try. Most often in these scenarios, we don’t get a deal done and that’s fine. The client does not want to sell for the very best deal I’m able to obtain. In that event, that’s OK! There is no fee due to me from my client.
To me, whether selling your oil and gas minerals is a good idea is a two-step process. You must first determine your goal or why you want to sell your oil and gas minerals. Is it a well-reasoned decision or an emotional reaction made out of frustration? Next, does the research support a price expectation you are willing to sell for? It’s not an easy decision to make and why many, many people seek the help of an oil and gas lawyer like myself.
GKT Local Oil and Gas Attorney
GKT has represented numerous landowners seeking to sell their oil and gas minerals for over a decade. We have the knowledge, experience, and relationships to make sure you receive top dollar for your oil and gas minerals. If you’re thinking about selling your oil and gas minerals, give me a call at (304) 845-9750 or live chat with us 24/7 at GKT.com. Of course, I’d be happy to set up a free, no-obligation consultation at your convenience.