How would selling my minerals affect my family members that also own interests?

Mineral interests are typically held as tenants in common as “undivided interests,” meaning each party is free to will, sell, or mortgage their interest without affecting one another.

>>Let’s use a quick example to clarify this “undivided interest” language before we confuse you too much. Let’s say you own 25% of the S/2 of a 640-acre section. The S/2 would not be then divided into 4 smaller pieces, rather you would own 25% of all the minerals under that S/2.

This is why oil and gas companies must lease from all parties, and each party is free to negotiate their own lease form and royalty rates. Selling your minerals will not impact the remaining undivided interests in a given tract.

I need money, but don’t want to sell my minerals, what are my other options?

They’re your minerals - you don’t have to sell all of them - or any of them. Selling a portion of your minerals may be a good way to generate the cash you need without parting with the whole family heirloom. As an alternative, if you are interested in taking a loan from RWW and pledging your minerals as collateral (rather than surface), please contact us.

What are the tax implications of selling my minerals?

We would suggest contacting a CPA specializing in taxes to help you plan for the future and get the most out of your sale proceeds, but here are a few tax advantages to selling mineral rights that are worth discussing:

1. Tax Savings: Taking advantage of the long term capital gains tax. As long as a mineral owner has owned their property for over a year, the sale of mineral rights is taxed as a long term capital gain. This differs from lease bonuses and royalty payments, which are taxed at an individual’s regular income tax rate.

2. Paying NO taxes at all: “1031 Like Kind Exchanges.” When a mineral owner sells mineral rights, the transaction is classified as a sale of real estate. Under IRS Code Section 1031, the proceeds from this sale can qualify to be used in what is called a “1031 like kind exchange.” In this scenario you could invest your profits from selling your mineral rights in another, “similar” piece of real estate (like another home or a vacation home).

Is groundwater part of the mineral rights?

Groundwater is part of the surface estate, even though it is located below the surface.

Permits have been filed around or on my minerals, does this mean they are getting ready to drill?

In some states, permits can tell you a lot about drilling activity, but in others, they don’t mean much. Wyoming is a first to file state, which means operators use permits to secure a future option to develop minerals under certain lands. Unfortunately, this has led to a major land grab by operators that don’t intend to drill any time soon. The table below illustrates the conversion rate of permits for select operators in Wyoming between 2015-2018, which is to say how many permits actually turned into drilled wells.

What are the chances of my minerals getting drilled?

This is the hardest question that every mineral buyer tries to answer, including us. Truth is, minerals aren’t worth much if there’s nothing being pulled out of the ground. Let’s use a statistical but realistic example for simplicity:

Assume there are going to be 300 wells drilled in the Powder River Basin (PRB) in 2020. On average 2 wells will be drilled together in the same 1280 acre drill spacing unit (“DSU”), meaning 150 new DSUs get developed. The core of the PRB covers about 3,000,000 acres. That means in 2020 the chance of a given tract of land getting drilled would be 64.5 out of 1000, or 6.45% (formula = 1280 acres *150 DSUs / 3,000,000 PRB acres).

Why should I decide to sell or keep my minerals?

The decision to sell minerals can be an emotional one, especially if they’ve been in the family for generations. If you have time on your side and don’t need the cash, you may prefer to make a bet yourself and hold on to your minerals. If you would rather diversify your family’s wealth or limit your exposure to volatile oil and gas cycles, it may be the right time for you to sell and reinvest your cash proceeds. Feel like you don’t lean to one side or the other? You can always sell a percentage your minerals and keep the remainder to make your own bet on future drilling activity.

Why are you offering to buy my minerals?

Think of us like any mutual fund or diversified portfolio you are familiar with. By aggregating a large portfolio of minerals, we are able to diversify and therefore decrease risk. Just like a mutual fund comprised of various securities such as stocks and bonds, there may be some big winners, but there are inevitably some big disappointments. Unlike an individual, a large company like Rocking WW is able to limit its commodity price risk through hedging production in the futures markets. Through a diversified portfolio of mineral assets and hedged production, we look to achieve consistent long-term growth with less volatility.

How do I know if I have a good offer?

RWW’s team of technical experts is as good as any oil and gas company drilling in the Rockies right now, which means we understand the rock and what it takes to get the hydrocarbons out of the ground. Rather than speculating and making you an offer we can’t stand behind, RWW is able to project how many wells may be drilled, by who, when, and what the production streams will look like. If you have an existing offer you aren’t sure about, we’d be happy to provide you with a free valuation

How are my minerals valued?

At RWW, we value your interests based on our technical forecasts of future development and the production associated with that development, discounted back to today. That means instead of waiting to see if a rig ever drills your minerals, and if it does, earning revenues over the 30-year life of the well(s), you get to realize that value in one lump sum, today.