How to Buy Mineral Rights
Oil and Gas mineral right s can be purchased at auction, from brokers, and through your network
Why Buy Mineral Rights?
Most mineral owners inherit their first mineral interest from relatives. Some keep the interest, following the age-old advice of “never sell you minerals” while others sell their mineral rights for a lump sum for various reasons.
A small number of mineral owners become fascinated by the oil and gas industry and, deciding the minerals they inherited are not enough, set out to buy more mineral rights.
But how do you by oil and gas royalties?
Let’s explore the different ways someone could purchase minerals and grow their mineral portfolio (preferably in a diversified manner):
A small number of mineral owners become fascinated by the oil and gas industry and, deciding the minerals they inherited are not enough, set out to buy more mineral rights.
But how do you by oil and gas royalties?
Let’s explore the different ways someone could purchase minerals and grow their mineral portfolio (preferably in a diversified manner):
- Oil & Gas Mineral Auctions
- Start a Mineral Acquisitions Company
- Leverage Your Network
- Tax Sale
- Mineral Broker
The last step in buying mineral rights is to transfer ownership.
Oil and Gas Auctions
Perhaps the most popular way to buy mineral rights is through auctions. You’ll find the following types of mineral rights:
- Mineral interest (MI)
- Royalty interest (RI)
- Overriding royalty interest (ORRI)
- Various types of working interest (WI)
There are a huge variety of properties in oil and gas auctions. You’ll find rip-offs with 60-year ROIs as well as high-quality assets. You have to be educated enough to know the difference and be willing to put in the due diligence of thoroughly researching each listing before you bid.
Accredited vs Unaccredited Investors
There are two main categories of bidders: accredited and unaccredited investors.
Some auctions, such as EnergyNet, are only open to accredited investors and they will call your financial advisor to make sure you meet the qualifications. Other auctions are open to all investors regardless of qualifications.
Types of Auctions
The auctions that are open to all investors (not just accredited) vary greatly. Some auctions will specialize in oil and gas mineral assets while others will sever fee-simple farmland and auction the surface and minerals as separate listings. You might even find minerals included in general auctions that are selling estate goods or in local small-town auctions.
A quick google search for “mineral rights auction” or similar terms will quickly lead you to some popular national auctions. Just be careful – there are a lot of bad deals out there.
Auction Frequency
Some online oil and gas royalty auctions are on a rolling cycle, with multiple lots ending each week or even bi-weekly. Other auction houses hold quarterly events, coordinating in-person auctions with a live stream video feeds and online bidding.
Getting Started
Some auctions are national while others specialize in a specific location. A few simple google searches should get you started in the right direction.
Accredited vs Unaccredited Investors
There are two main categories of bidders: accredited and unaccredited investors.
Some auctions, such as EnergyNet, are only open to accredited investors and they will call your financial advisor to make sure you meet the qualifications. Other auctions are open to all investors regardless of qualifications.
Types of Auctions
The auctions that are open to all investors (not just accredited) vary greatly. Some auctions will specialize in oil and gas mineral assets while others will sever fee-simple farmland and auction the surface and minerals as separate listings. You might even find minerals included in general auctions that are selling estate goods or in local small-town auctions.
A quick google search for “mineral rights auction” or similar terms will quickly lead you to some popular national auctions. Just be careful – there are a lot of bad deals out there.
Auction Frequency
Some online oil and gas royalty auctions are on a rolling cycle, with multiple lots ending each week or even bi-weekly. Other auction houses hold quarterly events, coordinating in-person auctions with a live stream video feeds and online bidding.
Getting Started
Some auctions are national while others specialize in a specific location. A few simple google searches should get you started in the right direction.
Start a Mineral Acquisitions Company
Most of the mineral listings on the auction websites were purchased by mineral acquisition and divestiture companies and are being flipped for a profit. In fact, if you look at the source deed, you’ll often see that the property was only purchased a month or two before the auction.
Many of these companies are exchanging properties using a 1031 Exchange, which is commonly used in real estate transactions to allow a company to defer capital gains taxes on an investment property when it is sold as long as a “like-kind” property is purchased with the profits of the sale.
Why compete with all the other buyers when you can start your own mineral acquisition company?
Sure, it’ll take some time and effort to compete in an already crowded space, but if you follow Garry Vaynerchuck’s advice, and put EVERYTHING into your new passion, you might be successful.
Many of these companies are exchanging properties using a 1031 Exchange, which is commonly used in real estate transactions to allow a company to defer capital gains taxes on an investment property when it is sold as long as a “like-kind” property is purchased with the profits of the sale.
Why compete with all the other buyers when you can start your own mineral acquisition company?
Sure, it’ll take some time and effort to compete in an already crowded space, but if you follow Garry Vaynerchuck’s advice, and put EVERYTHING into your new passion, you might be successful.
Leverage Your Network
Perhaps the best way to find minerals for sale is to leverage your network. Ask around. Landmen often help mineral owners figure out what they own and invariably, some mineral owners prefer to sell their mineral rights for a lump sum – rather than continue to collect declining revenue checks over a 10-20 year period.
While you can find landmen at the American Association of Professional Landmen (AAPL)‘s website, you might be better off connecting with the mineral-owner-friendly landmen on Mineral Rights Forum.
While you can find landmen at the American Association of Professional Landmen (AAPL)‘s website, you might be better off connecting with the mineral-owner-friendly landmen on Mineral Rights Forum.
Tax Sales
Many states charge ad valorem tax on mineral rights. When a property owner fails to pay the taxes, the county may sell the property in a periodic tax sale.
Each state has different rules so check with your county tax assessor's office about how they handle tax sales of mineral properties. Find out where they post the tax sale and asked to be added to an email list.
The tax sale list will contain some basic information about the property that will help you get started on your due diligence.
A vast majority of the real and personal properties in tax sales are surface land and mobile homes. However, you may occasionally find a mineral property.
Be sure and do your due diligence so you know what you're buying. Because mineral properties are rare in tax sales, there are often a group of people, who have traveled long distances to bid and the high bid can be more than the value of the mineral right.
In ome states, the buyer only gets the royalty interest, which ends when the lease ends. The mineral interest will still belong to the original owner.
Each state has different rules so check with your county tax assessor's office about how they handle tax sales of mineral properties. Find out where they post the tax sale and asked to be added to an email list.
The tax sale list will contain some basic information about the property that will help you get started on your due diligence.
A vast majority of the real and personal properties in tax sales are surface land and mobile homes. However, you may occasionally find a mineral property.
Be sure and do your due diligence so you know what you're buying. Because mineral properties are rare in tax sales, there are often a group of people, who have traveled long distances to bid and the high bid can be more than the value of the mineral right.
In ome states, the buyer only gets the royalty interest, which ends when the lease ends. The mineral interest will still belong to the original owner.