Much has been reported in the news lately about companies seeking to purchase minerals from residents, whether or not those minerals have been leased. While a company may offer an attractive up-front, one-time payment to buy minerals, mineral owners should take the time to carefully review all the long-term consequences of such a sale. Here a few things to consider when presented with this offer:
Leasing is a revenue-sharing arrangement where a mineral owner shares in the proceeds of any minerals produced from their property for as long as the lease is in effect. In contrast, the sale of minerals involves forever selling all or part of the minerals with no future participation in their production. Once the minerals are sold in exchange for a one-time payment, the rights to the minerals are permanently forfeited, resulting in the loss of any future income associated with the production of those minerals.
Surface ownership of real property and mineral ownership are two different issues in Arkansas. As a result, it is possible to own surface rights to real property and not own the minerals. Surface property can be sold to another individual while still maintaining the ownership of the minerals underneath that property. Often, real property value or the selling price can increase when the minerals are included or decrease when they are severed.
When the price of natural gas is low and there are no or few wells in the unit containing your mineral interest, it can be tempting to sell for the immediate funds, especially in tough economic times when cash is needed and the future production of minerals is uncertain. However, natural gas wells in the Fayetteville Shale are expected to be productive for more than 30 years, so it is important to consider the potential number of future wells, the potential performance of those wells, the long-term outlook for natural gas prices, the potential for discovery and production of other types of minerals, and the potential legacy that mineral ownership provides your children and grandchildren.
Other factors to consider before selling mineral property, such as technological advances, may be difficult to project, but can dramatically affect the future value of the mineral rights. Even with current technology, much of the gas in the Fayetteville Shale is still untapped. Improved technology may serve to increase a larger percentage of the currently unrecoverable gas in the Fayetteville Shale, which can result in additional and longer-term royalties to the mineral owner.
There may be other uses for minerals, aside from natural gas, discovered in the future. If the mineral property is sold, then the former owner will no longer have the opportunity to receive additional income from the production of the mineral estate.
Before entering into an agreement to sell your mineral rights, learn as much as you can about the individual and/or business that is offering to buy them. It is important to keep in mind that the sale of minerals is a real property transaction. For that reason, it is highly recommended that those considering the sale of their minerals seek legal and/or real estate counsel in order to fully understand all available options and any potential surface impact.
For more information on this topic, you may contact the Arkansas Oil and Gas Commission at (501)683-5814 or visit www.aogc.state.ar.us.