Selling oil and gas royalties is a demanding task, requiring knowledge about the nuances and
intricacies involved. To sell oil royalty to a professional company – one with
years of experience – is a daunting venture. Being well-informed and confident
in the field is what will make your negotiates worth the time and effort.
Mastering the Skill of Selling Oil and Gas Royalty
Typical Buyers
For starters, you need to know whom you are
dealing with. At present, there are thousands of private and public companies
willing to buy oil and gas royalties. Majority of the customers investing in
these mineral resources are independent brokers who must essentially attain the
approval of their clients before accepting offers.
The Negotiation Process
This is where you take center stage. Do not
accept the first offer you get – this is simply the baiting bid; a lower offer
compared to what the client can actually invest. Always remember: negotiate on
your own reasonable terms. Keep in mind the amount of mineral you can provide,
the location of production, and market competition.
Handle all negotiations with care. The
client will offer counter-offers based on your outlined terms of lease. Being
attentive and confident during negotiations guarantees a successful desired
outcome.
Favorable Lease Terms
Be sure to discuss important monetary
information, such as initial terms of the lease, percentage royalties shared
and bonus amount of the lease. On average, terms of the lease revolve around a
three-year mark. Be careful: do not agree to any extension that might give the
broker leverage at the end of the lease.
Knowing Different Clauses
Royalties vary considerably depending on
certain criteria. As a general rule of thumb for the royalty spectrum, 12
percent is the lower end and 25 percent is the higher end. To save yourself
from being scammed or cheated, keep a checklist of all favorable terms. A
Vertical Pugh Clause frees all depths under the deepest production zone.
However, a Horizontal Pugh Clause releases frees all the land, even which is not
included in the negotiations.
It is advised to decline the ‘Mother Hubbard
Clause’, restricting the lease to oil and gas strictly. Moreover, it is
preferred that the warranty title be deleted. Once these standard terms are
acquired, the final negotiation process can begin.
