Series 2: Types of Mineral Buyers and Who to Avoid
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If you own oil and gas mineral rights and royalties, chances are that you've received contact from someone in the past offering to buy them!
Mineral buyers are everywhere and the market for oil and gas minerals and royalties has exploded over the past decade.
In Part Two of our Series on the Types of Mineral Buyers and Who to Avoid, we're going to be talking about the Shale Revolution and the birth of the professional mineral buyer.
In Part One of this Series, we talked about the History of Mineral Buying and the Knowledge Arbitrage (you can find that post here). Today, we're going to be talking about mineral buyers in the modern era and the Shale Revolution.
We also have a YouTube video on this topic. If you don't want to read, you can check out the video here:
The Shale Revolution
In the mid-2000's, there was a rebirth of oil and gas expiration and production here in the U.S. In the decades leading up to the Shale Revolution, U.S. production had been in decline due to a lack of new discoveries of conventional oil and gas fields.
In the early 2000’s, a few innovative, pioneering companies came up with the idea that if they applied the new technology of horizontal drilling with an older technology of hydraulic fracture stimulation (or "fracing"), they could unlock new reserves of oil and gas from Shale formations.
Now, the Shale formations had always been there and in many cases Shales served as the "source rock" for conventional accumulations of oil and natural gas. In fact, companies frequently drilled through and penetrated Shales with vertical wellbores, but up until this point Shales were never able to be produced in an economic fashion due to the low permeability character of the rock.
The combination of horizontal drilling and hydraulic fracturing in Shale Formations set off a tidal wave of new energy production here in the US that we call the Shale Revolution.
Mineral Ownership in the Modern Era and the Birth of the Professional Mineral Buyer
By the mid 2000’s the world had changed—we had access to the internet, we had access to cell phones and computers, and all of the technological innovations that we've grown so accustomed to.
And mineral owners began to get smarter about oil and gas production.
They had access to State Conservation Commission websites which provided information about oil and gas production in their area. Mineral owners also had access to new web forums that were created to connect mineral owners in their communities and across the country. It was during this time that lease royalty rates began to increase from a historic 1/8 or 12.5%, all the way up to 18.75%, 20% and in some cases even 25%. It was also during this time that lease bonus payments, or signing bonuses granted upon execution of a lease, begin to increase. In some areas they got pretty crazy, upwards of $10,000, $15,000 and $20,000 (or more) per net mineral acre.
It was also during this time that huge amounts of capital began to flow to the oil and gas industry. First, that capital flowed to operations--to the exploration and production companies that were drilling for and producing these Shale reserves.
However, it wasn't long before that capital began to realize the value proposition of acquiring and aggregating large blocks of mineral rights and this is really when the professional mineral buying class was born.
These professional mineral buyers brought a level of integrity and honesty that was hard to come by in mineral buying prior to this time.
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The Growth of the Market for Mineral Rights and Royalties
The market for oil and gas minerals exploded as more buyers emerged and competition among those buyers began to grow.
The market for oil and gas mineral rights and royalties today is orders of magnitude larger than it used to be in the past.
There are all sorts of legitimate buyers funded by all sorts of capital: public companies, companies backed by private equity, companies that are privately funded by family office capital and high net worth individuals.
This means is that if you own mineral rights today, you own a fairly liquid asset, similar to other assets that you may own on your personal balance sheet, and you have the opportunity to sell to one of these legitimate buyers and achieve a market value.
Okay folks, today we talked about mineral ownership in the modern era. We hope you'll join us for Part Three of this Series where we're going to talk about the types of Mineral Buyers, how to evaluate them, and red flags that can help you identify folks you should avoid!
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