When mineral interest (MI) is listed for sale, it usually refers to non-producing minerals. Mineral interest in a specific tract of land does not currently have a producing well and is not generating royalties. Mineral interest without production is often referred to as "non-producing" minerals.
When interest in a producing oil well is listed for sale, this is called "royalty interest." When an oil and gas lease is signed, the lessor receives royalty interest for the duration of the lease. When the lease ends, the royalty interest (and therefore the buyer's ownership) ends.
The combination of mineral interest and royalty interest indicates the seller is selling both the mineral interest (usually with executive rights) and royalty interest in a producing property with revenue. When the current lease ends, the buyer will still own the property.
Like royalty interest (RI), Overriding Royalty Interest (ORRI) ends when the lease ends. You will only own interest for the duration of the lease - so don't buy something that is about to be plugged!
Wellbore only interest is similar to royalty interest, but rather than receiving royalties on all wells in the lease, you will only receive royalties on the specific wellbores for sale. When well stops producing, your interest ends.
|Source||Accredited Investors Only?||Price Range||Focus||Auction||Sealed Bid||Negotiated Sales||Listing|
|EnergyNet||✓||$200 - Millions||All O&G Producing States||✓||✓||✓|
|Oil & Gas Asset Clearinghouse||✓||All O&G Producing States|
|Mid-Content Energy Exchange||✓||KS, TX, OK, LA, CO||✓|
|Simon Energy Assets||TX||✓||✓|
|Wiggins Auctioneers||OK, KS||✓|
|Mineral Focus||All O&G Producing States||✓|
|Mineral Marketing||150K - 50 Million||All O&G Producing States||✓||✓||✓|
|Mineral Insight||All O&G Producing States||✓|
|America's Choice Royalty Partners||PA, OH, WV||✓|
EnergyNet is probably the most popular mineral auction. They offer a continuous mineral auction, with small properties selling for a few hundred dollars to larger properties selling for several hundred thousand dollars.
During the first quarter of 2019, EnergyNet sold 6,969 assets for more than 330 million dollars at auction, through negotiated sales and sealed bids.
EnergyNet is ONLY for accredited investors. They will contact your financial advisor to confirm your status as an accredited investor and verify that you have sufficient funds to meet your bid allowance.
Oil & Gas Asset Clearinghouse has been selling minerals since 1992 and offers a continuous online auction, private sale listings, and negotiated transactions. They tend to deal with larger properties.
Oil & Gas asset Clearinghouse (OGAC)has fewer properties than EnergyNet, and their deals are usually large.
OGAC does not require banking information to sign up for a buyer's account, making them accessible to buyers who may not be eligible for EnergyNet.
Mid-Continent Energy Exchange (MCEE) offers an ongoing bid-exchange auction with periodic live auctions containing a variety of mineral rights located in Oklahoma, Kansas, Texas, Montana, North Dakota, Illinois, and other mid-content oil and gas states.
Mid-Content Energy Exchange has an online bidding system so internet bidders can participate in the live auction (via simulcast) without being there in person.
Simon Energy Associates (SEA)is an independent firm specializing in the divestiture of energy assets. SEA sells mineral rights through negotiated sales and sealed bids.
Simon Energy does not require buyers to be accredited investors, but most of their properties range from $500,000 to 10 million dollars.
Wiggins Auctioneers is a well-known auction service based in Oklahoma. They are open to the public, and bidders do not have to be accredited investors.
Wiggins run Oklahoma and Kansas mineral auctions every few months, sometimes severing the minerals from the surface and selling the minerals and surface individually.
Mineral focus connects buyers and sellers without taking a commission or charging a fee. They list land with mineral rights as well as minerals without surface rights.
Mineral Focus does not participate in the negotiation - they introduce buyers and sellers via a free online listing service.
Mineral Marketing follows a traditional real estate model, but for minerals. They sell minerals, operations, and equipment in transactions that range between 150,000 and 50 million.
Mineral Marketing negotiates deals between buyers and sellers with occasional live and online auctions.
Mineral Insight provides "comps" to mineral owners, so they will be in a better position to lease or sell their minerals.
Mineral owners can also list their minerals for sale to Mineral Insight's network of buyers.
America's Choice Royalty Services (ACRS) is a licensed brokerage focusing on the Marcellus and Utica shale plays of the Appalachian Basin.
ACRS has a large network of mineral buyers ranging from large hedge funds to private investors. They are often able to find exactly what buyers are looking for, providing sellers a way to capitalize on a valuable asset despite the lack of drilling and infrastructure.
Evenson Auctioneers is a Kansas based auction service that holds periodic oil and gas mineral auctions. Auctions are open to the public, and 20% of the sales price is expected during the time of the auction.
Evanson has an email list to notify buyers of upcoming auctions.
Develop a plan or preferred location to buy minerals. For some people, it'll be whatever they can find for less the "x" number of months ROI. For others, it's a specific type of interest in a specific area. It's usually wise to diversify your mineral portfolio.
Look through the auctions, sealed bids, negotiated sales, and minerals for sale listings on the websites above to get a sense of what is available and see what fits into your acquisition plan.
Once you find some listings that interest you, do your research. Thorough due diligence is essential. Look up the property on the state's oil and gas regulatory commission's website (and GIS viewer). View the production (if any) as well as offset production. Overlay maps of the mineral location and drilling activity. Look at the lease reports for typical lease terms. And more.
Once you have identified a good mineral right to purchase or bid on, submit your offer or place a bid. Each platform will have its own process that you need to follow.
If you are the winning bidder or your offer was accepted, you will probably receive an invoice and have two or three business days to wire the funds and pay for your new minerals. Once the payment is received, the mineral conveyance or deed will be signed and either sent to you or sent to the county clerk's office for recording.
Some firms send the conveyance document or deed to the county clerk where the minerals are located for recording. Others send you the original documents, and you need to have them recorded with the county clerk. If you purchased producing minerals, a copy of the recorded document needs to sent to each operator to transfer the minerals into your name. You may also want to send a copy to the tax appraisal office. Once the ownership is transferred, the operator will send out new division orders, which you need to review, sign, and send back with a form W9.
Make sure you know what you own and keep good records. Original documents should be well organized in folders, and digital copies should be placed in digital folders. You should also have a spreadsheet, detailing everything you own. Download a free mineral management spreadsheet.
New oil and gas wells decline sharply (especially horizontal wells). The royalties from the first few months of production should not be used to value the property. It is quite common for a 1-year old well to produce 1/2 or even 1/3 of its initial production. Value the minerals using the first 6 to 12 months of production will result in dramatically overpaying for the interest, and you may never get a return on your investment.
Hydrocarbons are finite resources. Successful conventional wells generally produce smaller amounts of oil and gas for long periods of time. The newer horizontal wells produce large quantities of hydrocarbons, but only a few years. Buying interest in a well that is near the end of its life is risky. It may be plugged and abandoned before you get a return on your investment. And if your interest terminated with the lease, you no longer have the ability to generate income in the future.
New oil and gas wells decline sharply (especially horizontal wells). The royalties from the first few months of production should not be used to value the property. It is quite common for a 1-year old well to produce 1/2 or even 1/3 (or less) of its initial production. Valuing minerals using the first 6 to 12 months of production will result in dramatically overpaying for the interest. You may never get a return on your investment - especially during this industry-wide oil and gas slowdown.
More often than not, mineral owners don't really know what they own. The onus is on the buyer to do conduct extensive due diligence before purchasing minerals. Poor due diligence may result in your purchasing minerals from someone who doesn't actually own any minerals (or who owns only a small fraction of what they thought they owned). It's risky - especially when buying non-producing mineral rights.
Most mineral owners do not hire an attorney to negotiate lease terms. This is a huge mistake and causing them to leave money on the table. One of the many terrible, but common lease terms is giving free gas to the operator in order to run the well. Some operators have started running their frack fleets on natural gas, and guess who is financing that? Buying mineral rights with poor lease terms exposes you to additional risk.
If you don't thoroughly understand the different types of mineral rights and buy working interest, you now have the responsibility of operating the well and paying all the expenses (including the mineral owners)! Non-operated working interest owners are not involved with the day-to-day operations but are still obligated to pay their share of the expenses. For this reason, a lot of buyers stick with mineral interest (MI), royalty interest (RI), overriding royalty interest (ORRI) and non-participating royalty interest (NPRI).