A few years ago my wife inherited a small percentage, split partly between her siblings and cousins, in some mineral rights out in west Texas where her family used to live. In the mean time, Clayton Williams subsequently drilled a well on this property, and she has been receiving monthly, except for some small gaps, checks for her share of the royalties for several years now. It is not a lot, recently maybe 100$ or so, but was more, maybe 200-300$, back when crude prices were much better.

About a year or two ago, she and her relatives all received an offer to buy their share for around 25k each from one of the many entities that solicit for these kind of things. I think pretty much all of them took the offer, except for my wife, possibly partly due to my advice to hold onto it, or I would like to think. Anyway, so she has still been collecting her monthly check, even though she still gets offers to buy her interest in the rights. The offers started out not too bad, easing up to about 35-40k, then a little over 50k, until she received one in the mail just the other day that was just a bit shy of 100k. I have to say, that is pretty tempting to take them up on, as opposed to only getting maybe a couple of thousand a year for the rest of the life of the well. We are getting close to retiring in 3-5 years, and that would sure help out.

I guess my question is, do you all think it might be a good time to sell at this price? I keep thinking in the back of my mind that maybe "they" know something we don't, because I don't see how this could pay out for them at the current and near foreseeable rates of return at that price. Also, I have heard many people say "Never sell royalties", and I'm sure there's a lot of truth to that in most instances. For a little background, this well is in Reeves county, near Verhalen. It has not ever been fracked as I recall, although I seem to remember that maybe it was drilled horizontally, I can't be sure. I have to wonder if it is possible it might eventually be fracked, in an effort to boost production, which might make it more profitable and justify the recent offer.

You might want to consider selling a percentage of it and keeping some for yourself. That way you have cash for retirement but still have a part of the potential upside should additional wells be drilled.

aggie028 said:

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If you want to, post your email and I can help you out. I am very familiar with going rates but will need to know what you own to determine how strong the offer is.

One thing to keep in mind is they could be putting a number on there to get your attention and then they'll reduce offer when they confirm how much you really own. Many of the buyers these days are a bit slimy.

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90% of royalty buyers would be used car salesmen if it weren't for the oil business. I'm in the oil business and occasionally buy minerals, but it's not my main source of income.

Many royalty buyers throw out a large number then scale it back significantly. Many royalty buyers will know you own some non-producing minerals in addition to your producing minerals and will write the assignment such that you convey everything when you only know that you're selling the minerals that you have been paid on. Many royalty buyers will find that there is money owed to you that you don't know about and write the assignment such that those funds transfer to the buyer. Many royalty buyers have very little capital, but they will make a deal with you, and string out closing until they find a buyer to pay them more for your minerals.

Find an oil and has attorney to review any assignment. Like Trump would do, make the mineral buyer pay your attorney fees. The attorney should make sure you're only conveying what you believe you are conveying.

When I get calls from potential clients that are considering taking such an offer to buy, I stress over and over (and in writing) not to sell minerals. That being said, if the money is significant and their chances of getting production are slim AND the person is going to use the money for further investment (not a trip or a car), I will tell them to go for it.

Based simply on location I would not sell that under any circumstance. No way.

If the acreage was Clayton Williams', it's now Noble's. There's a good chance they will develop it with horizontals. You're in the hottest basin there is right now. Toward the south end of the basin, but there's still Wolfcamp there.

Now I don't have any idea about depth severances or what formations are included in your lease, but based solely on what you've told us so far...don't sell it. Just no.

Latigo said:

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You might want to consider selling a percentage of it and keeping some for yourself. That way you have cash for retirement but still have a part of the potential upside should additional wells be drilled.

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This is probably the smart move. Take 50 Grand and leave the rest for your kids because it'll be years before the whole of this acreage is developed most likely. They can go in and drill one well and hold it for decades and the guys who are paying you are planning on there being multiple wells in multiple stacked zones that in all likelyhood will take decades to develop

Thanks for all the suggestions. I am still leaning like several have advised on just holding on to it, but it can be tempting. If we do anything with it, it will likely be all or nothing. If we were to sell, we definitely would not blow it, but add to our investments. Holding onto it to pass down to our son is not necessarily a big concern, we are pretty confident he will be okay financially down the road. He's a good Ag.

Technology can change things fast. $100k could be peanuts in comparison. Something to consider.

aggiedata said:

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Never sell mineral rights.

That's my personal opinion. I have seen people really, really regret that decision.

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This is where I am as well. Have had many dozens and dozens of clients get offers for their minerals. For the most part they did not need the money and only a few have sold. One sold his for something around $80,000 and within a couple of years regretted it based on what others were getting in royalty income. A couple of family members (one was a generation below the seller and the other two generations below) got wind of the monthly income others were getting and had their claws out trying to find someone who had advised him to sell.

Not in west Texas. In my humble experience.

*rereading this as if you take $100k now it could be 0 later. Then I agree

Yep. That's why I advise all my clients not to sell. When the money dries up, they'll want someone to blame other than themselves. I've had clients offer to sell their minerals to me..I tell them "hell no".

On the flip side, I have many clients that received huge royaltie (like $70k -$300k per month). I told the "save it". They thought it would last forever, but when those wells dipped and/or prices fell they had nothing. They gavr their kids huge stipends (didn't pay for college), trips, big trucks, motorcycles, etc. Then they don't have the money to pay their taxes. It's sad.

queso1 said:

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Yep. That's why I advise all my clients not to sell. When the money dries up, they'll want someone to blame other than themselves. I've had clients offer to sell their minerals to me..I tell them "hell no".

On the flip side, I have many clients that received huge royaltie (like $70k -$300k per month). I told the "save it". They thought it would last forever, but when those wells dipped and/or prices fell they had nothing. They gavr their kids huge stipends (didn't pay for college), trips, big trucks, motorcycles, etc. Then they don't have the money to pay their taxes. It's sad.

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There was a sign, a bumper sticker if memory serves me right, in one of the interior windows in our courthouse that said "Lord give me one more oil boom and I promise to save some money this time" or something to that effect.

Most of my clients who went from getting a couple hundred dollars a year to tens and tens of thousands a month were older folks and held on to much of their mailbox money from the wells that were drilled on the 3D seismic data. Those that went through it pretty fast were mostly younger folks.

How many acres are you talking about? If you are talking about $100k/acre it could be a very fair offer. Depending on where in Reeves leasing costs are 20-50K/acre, but a mineral would be worth much more than that. I'd tend to agree with the guy that said never sell your minerals there, just lease them smartly. The caveat is if someone is willing to pay way over the going mineral market comp's, then you'd need to hear them out.

They aren't paying $50k per net mineral acre for leasing. Companies that put together acreage blocks might get that price. Mineral owners aren't near that.

I'll sell you my car for $10k. Is that a good deal or not? Do I have a brand new BMW or do I have a 1995 Accord? The $100k offer is meaningless without context.

There are definitely people paying BMW prices for hondas...just because everyone is buying a car from that dealership.

They'll be weeded out pretty quick.

Yeah...not nearly enough info. Reeves is huge.

labmansid said:

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I guess my question is, do you all think it might be a good time to sell at this price? I keep thinking in the back of my mind that maybe "they" know something we don't, because I don't see how this could pay out for them at the current and near foreseeable rates of return at that price.

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I am a professional mineral buyer and I do not think it is a bad time to sell. I am considering divesting a large package of minerals this fall, some of which are in Reeves....my situation is a little different because I can go out and replace that inventory eventually.

However, I think we are in a "permian bubble" and the values being given to minerals in parts of the Midland and Deleware Basins are not mathematically rational in my opinion.

There are a variety of factors I believe this to be the case but it boils down to the fact there is about 5X as much money deployed in this space as there are minerals to buy, resulting in some runaway valuations.

With all that said if you don't need the money i.e. it won't change your lifestyle or retirement...don't do it. Nothing else in your portfolio is going to have the chance to grow as much.

If it will I think you would be crazy not to as you really never know in the oil business.

It sounds like you fall into the former camp.

If you had 30 years until retirement instead of 3-5, I'd look seriously at taking the money, because $95-$100k invested now can be worth over $2 million in thirty years, as opposed to $2400-$3600 a year over the next 30 years.

I echo the advice of others on here, and say don't sell.