Your Guide to Buying Oil and Gas Royalties

by | Oct 30, 2014 | Business & Society

The process and practice of buying oil and gas royalties is easier than you realize. When a property owner leases their mineral rights to producers, they are entitled to be be paid royalties on a percentage of the revenue made by the producer. Because of the high demand for oil and gas, buying oil and gas royalties is a good investment which results in a about 12% to 30% returns.

This article discusses how to calculate your potential royalties payments, as well as steps to purchasing royalties for yourself.

How Do You Calculate Oil and Gas Royalties? says that, “When minerals are produced from a leased property, the owner is usually paid a share of the production income” (2014). In other words, you are entitled to royalties from the revenue the oil and gas makes the producer. If you lease a portion of mineral rights holdings, you are eligible to negotiate royalties. Once exploitation of the minerals (in this case, oil and gas) have begun, you are entitled to whatever percentage of ownership you have on the land.

The royalties are determined by a percentage of royalty agreed to between you and the producer you are leasing to (the Lessee). Common royalty percentages are ⅛ (or 12.5%) and ¼ (25%). Tools like Mineral Wise’s Natural Gas Royalty Calculator and Oil Royalty Calculator can help you figure out what your incoming payment might be.

How Do You Buy Oil and Gas Royalties?
Anyone who leases mineral rights for oil and gas is eligible to purchase royalties because the resources were mined and exploited from their mineral rights. Buying royalties for oil and gas can be simplified into a few steps:

Find Someone Who Wants to Sell Their Royalties
As you may have guessed, this is the hardest part of the process. Many people do not want, or have been advised not, to sell their oil and gas royalties. There is, however, a way to generate leads. If you already have royalties and you’re interested leasing adjacent or additional mineral rights properties, you can look for names in the Division Orders, a document that shows which individuals are getting what share of the money.

If you need another option, you can work with a mineral rights real estate professional, and they can find potential sellers for you.

Call Leads, Make Offers, Be Available, and Follow-up Quickly with Potential Sellers
The lifeblood of your search for a seller involves cold-calling your leads. Be ready to face resistance from most of your leads, but offer a fair, attractive deal over the phone. If you leave message or cold-emails, make sure that you are highly available to return all inquiries for your offer. One of the most important sales tips applies to this situation: the faster you can respond to your leads, the more likely they are to work with you.

Send Paperwork to All Sellers with an Interest in Selling
The less time you give a seller to think about it, the more likely they are to sell. If you speak to someone who is even remotely interested in selling their royalties (due to poor yield on their investment, disinterest, etc.), send them the paperwork to sign it. This greatly increases the chance of them making the final decision to sell, especially if your offer is attractive enough.

The Oil and Gas Royalties Are Yours
After paying the seller, take the final deed to the county courthouse to finalize it. Once it is filed, you are the official owner of the mineral right’s loyalties.

Does this process seem arduous and complicated? Simplify things and take the headache out of buying oil and gas royalties by working with H&M Land and Minerals.

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