Selling Oil and Gas Royalties

Selling oil and gas royalties can be a very lucrative venture. You must take it upon yourself to become educated on the nuances involved in this process. The people you will be conducting business with will more than likely be a professional company that has vast experience with these types of acquisitions. Arming yourself with the knowledge to confidently negotiate will give you the advantage.

First, know whom you are dealing with. Today there are thousands of public and private interests vying to buy up the royalties to these resources. Many of them are independent brokers who conduct acquisitions of mineral leases. Understand that if you are dealing with brokers they have no authority to negotiate with you. They must obtain approval from their client before accepting any offers.

This leaves you with the edge. Do not accept the primary offer this is the baiting bid and is usually on the low end of what the client is willing to offer. Negotiate the terms that you want, do not accept anything less. The deck lies stacked in your favor, but there are some things to consider such as how much of the mineral is in your possession, the location of production, and competition for leases. Negotiations should be handled with care.

Discuss the bonus amount of the lease, the percentage of royalties shared and the initial terms of the lease. Any bonuses and royalties will be vastly different from location to location and are initially based on the three factors previously stated. On average, lease terms hover around the three-year mark. Be careful not to agree to an extension that will give the brokerage leverage in renegotiations at the end of the lease.

Royalties will vary considerably based on certain criteria. As a general rule of thumb 12% is considered the low end while 25% is the top of the spectrum for royalties. A checklist of favorable terms will give your the added security of knowing that you are not being taken advantage of. A Vertical Pugh Clause releases all depths under the deepest production zone. The Horizontal Pugh Clause in contrast, releases all land not included in the unit being negotiated.

It is advisable to forgo the "Mother Hubbard Clause" altogether while limiting the lease to oil and gas only. It is also preferable for you to have the warranty of title deleted. These items are standard requests that are usually accommodated without incident. Once acquired, the brokerage will begin the process of negotiating. There will be counter offers based upon your outlined lease terms. Be diligent during the negotiating process and you will succeed.

The information provided in this article will aid you in the process of selling oil and gas royalties. The topics covered were typical buyers, what to expect in the negotiating process, and favorable lease terms to include in your negotiations. After reading this article you will be ready to sell your oil and gas royalties with ease.