Selling Oil and Gas Royalties the Better Way

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.  

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