Selling Mineral Rights

Learn About Mineral Rights and Get the Most Value by Selling

We provide landowners with the resources and knowledge they need to learn about mineral rights and understand the benefits of selling.

Are you interested in learning more about selling your mineral rights and earning money for your oil and gas royalties? As one of the top oil & gas companies in Colorado, our experienced team will provide you with the information you need to make an informed decision regarding your land – and offer you the best value should you choose to sell your mineral rights. Our representatives are standing by to provide you with more information on your specific situation and help guide you through the process of selling your mineral rights. Request a consultation or call us at 720.943.5980 for more information. What are mineral rights? Find out the answer to this question and learn more about some of the common questions surrounding mineral rights in our Mineral Rights 101 guide.
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Why Sell Mineral Rights?

Reduce Risk

Reduce the risk of volatile oil and gas prices with a comprehensive mineral rights valuation.

Accelerate Value

Accelerate valuation of mineral rights and enjoy the benefit of making your minerals work for you.

Reduce Taxes

Reduce your mineral rights tax burden by realizing much lower capital gains tax rates.

Invest Proceeds

Invest proceeds from a sale tax free into other real property by using a 1031 exchange.

Areas Of Interest

Selling Mineral Rights FAQ

What are mineral rights?

Mineral rights, the “mineral estate” or “mineral interests” are the rights of the owner to exploit, mine and/or otherwise produce the minerals lying below the surface of a property. The mineral estate includes all organic and inorganic substances that form part of the soil: e.g. oil, gas, gold, coal and other metals and minerals. Oil and gas are the most commonly extracted in the United States.

The mineral estate is separate and distinct from the “surface estate”. The surface estate is what gives an owner the right to do what he wants on the surface of the land, i.e. build a home, farm, etc. Often, the owner of the surface estate is not the owner of the mineral estate. This is because in oil-producing states like Colorado, Texas, Oklahoma, North Dakota, California and New Mexico, the mineral rights are commonly sold, reserved or were otherwise severed from the surface estate at some point.

Interesting Fact: The United States is unique to the world in that it is the only country that allows citizens to own mineral rights. What are mineral rights like in other countries? In many countries, mineral rights are the property of the government or controlling state.

Should I sell my mineral rights?

Many landowners who have established that they own the mineral rights to their property generally have two options available when it comes to monetizing and selling their mineral rights. They can either lease your mineral rights to an oil company with the hopes that it one day drills a well and you collect royalty payments; or sell the mineral rights outright for a guaranteed, upfront cash payment. Should you sell your mineral rights? There are several factors to consider when choosing the best option and benefits of selling mineral rights.

While the thought of possible future income from leasing mineral rights can be enticing, it is also a risky strategy. There are several factors that you have no control over when you lease mineral rights to an oil company. Chief among them are the oil company never actually drilling a well, and if it does, the well-being non-productive. Additionally, the volatility of commodity prices makes it difficult to count on a consistent income stream from oil and gas royalties.

You may recognize that by its very nature, the oil and gas industry holds a high degree of uncertainty and after weighing all the risks and rewards, decide you want a less-risky alternative to leasing. In this case, selling your mineral rights may make sense for you. You are taking cash in hand today, as opposed to waiting and banking on things outside of your control. You may then decide to put this money into safer, more predictable investments, creating a consistent income stream for you and your family.

Selling your mineral rights also offers tax advantages. Any royalty income you receive when leasing is taxed at your regular income tax rate. When you sell, as long as you have owned your mineral rights for more than one year, gains are taxed at the long-term capital gains rate. This can result in significant tax savings. Learn more about taxation of oil and gas royalties and mineral rights laws.

What are the Benefits of Selling Your Mineral Rights?

  • Reduce Risk: Reduce the risk of volatile oil and gas prices that come with leasing mineral rights
  • Accelerate Value: Accelerate value of minerals and enjoy the benefit of making your minerals work for you or cash out and invest in alternative assets.
  • Reduce Taxes: Reduce your tax burden by realizing much lower capital gains rates vs ordinary income rates
  • Invest Proceeds: Invest proceeds from a sale tax free into other real property by using a 1031 exchange.
  • Work with Experts: Work with our team of land management and oil and gas experts to optimize your assets and maximize your piece of mind.
How to sell mineral rights?

If you are interested in learning how to sell mineral rights, you’ve come to the right place. We can help guide you through the process of selling mineral rights from start to finish. At Ferrari Energy, we are dedicated to helping land and mineral rights owners sell their mineral rights for maximum value.

While each mineral rights transaction is unique, most follow a similar straight-forward framework:

  1. Buyer and Seller Agree on a Price
    1. Purchase price is often quoted in terms of dollars per net mineral acre. Net mineral acreage is calculated by taking a landowner’s total acreage and multiplying it by his ownership interest. For example, a landowner and his brother each inherit a 50% undivided interest in 100 mineral acres from their father. In this case, each brother now owns 50 net mineral acres (100 acres x 50% ownership interest). If one of the brothers decides to sell his acreage, the buyer may present an offer of “$500 per net mineral acre, or a $25,000 total purchase price.”
  2. A Purchase and Sale Agreement (PSA) is Executed and Mineral Deed is Signed
    1. This contract outlines each party’s obligations. Two of the most important terms are purchase price and closing date. The closing date is particularly important as the buyer will need time to verify that the seller in fact owns the mineral rights (this is often referred to as “verifying title”). Some buyers will take up to 3 months to close. This generally means the buyer is either inexperienced or is looking to shop or broker your rights to another buyer (which means you, as the seller, are leaving money on the table). A reputable, experienced buyer should be able to close in 45 days. The mineral deed is the document that transfers ownership of the mineral rights from seller to buyer.
  3. Deal Closing
    1. Once the buyer has completed due diligence, he will transfer funds to the seller and record the mineral deed. At this point, the transaction is complete.

As you can see, mineral rights closings are much simpler than traditional real estate transactions. No outside parties are involved, and only the buyer and seller need to act.

Learn more about how to sell mineral rights or request a consultation from one of our experienced team members.

How to value mineral rights?

The million-dollar question is how to determine your mineral rights value? How much do mineral rights sell for and how much money can you make from your oil and gas royalties? The price someone is willing to pay for mineral rights is influenced by several factors:

  1. Geology. Where are the minerals located? Areas that have proven to be oil and gas rich will command higher prices than those that are unproven.
  2. Commodity Pricing. Oil and gas prices are volatile and unpredictable. Because the underlying value of the mineral rights is tied to the oil and gas below ground, commodity prices have a significant influence on the price a buyer is willing to pay for mineral rights.
  3. Current Production. Mineral rights fall into two categories when it comes to production: producing and non-producing. Producing means that oil and/or gas is currently being extracted and there is an associated cash flow. Non-producing means no extraction has occurred and thus no cash flows.

When mineral rights are producing, the valuation process is straightforward. Buyers will generally pay some multiple of current and projected cash flows. When the mineral rights are non-producing, there is significantly more risk, which will result in a lower mineral rights value.

Learn more about how to value mineral rights or contact us for a free mineral rights appraisal.

What are the tax implications of selling mineral rights?

Mineral rights owners are able to take advantage of certain tax benefits that can help significantly reduce the tax burden when selling mineral rights. The primary factors that determine how much an owner will owe in taxes are:

  1. How long the mineral rights have been owned for
  2. Cost basis in the mineral rights

If mineral rights are owned for more than 1 year, they qualify for long-term capital gain treatment. This is extremely advantageous as the long-term capital gain tax rates are 50%+ less than the ordinary federal income tax rate, immediately cutting the owner’s federal tax liability by more than half. Learn more about how royalty income is taxed.

The second advantage is that not all sale proceeds are taxable; only the gains are. The amount of taxable gain is calculated by taking the sale proceeds minus the owner’s cost basis.

Typically, the owner’s cost basis will equal the estimated fair market value of the mineral rights at the time of inheritance. The owner’s tax liability is reduced by the percentage that the cost basis represents of the sale proceeds. For example, if the cost basis represents 25% of the sale proceeds, the owner’s taxes will be further reduced by 25%.

Learn more about taxation of mineral rights law.

Ready to learn more about selling your mineral rights? Contact us today to get started with a mineral rights appraisal.

Ready to learn more about selling mineral rights?
Contact us today to learn more.