For East Texas mineral owners
How a mineral buyer actually prices your royalty
When you get an offer on your minerals, there is a method behind the number. Most buyers do not explain it. We would rather you understood it, because a seller who knows the math makes better decisions, even if that decision is to keep what they have.
Start with the unit: net royalty acres
Acres alone do not tell a buyer much. What matters is net royalty acres, which adjusts your acreage for the royalty rate in your lease. Two owners can both have "ten acres" on paper and own very different amounts of income.
Here is the conversion, if you want to run it yourself:
Net royalty acres = your net mineral acres × (your royalty ÷ 12.5%)
So 40 net mineral acres leased at a 20% royalty is 64 net royalty acres. Ten acres leased at a 25% royalty is worth twice as much as ten acres leased at 12.5%. When two buyers quote you different numbers, a different read on your net royalty acres is often why.
Producing minerals: priced off your check
Most buyers price producing interests as a multiple of what you are currently being paid, expressed in months. A common range is 36 to 60 months of your recent average monthly income. Where you land inside that range depends on a few things, and it is worth knowing which way yours cut.
1. How old the wells are
Wells do not produce at the same rate forever. Shale wells, like the Haynesville wells in San Augustine County and Nacogdoches County, come on strong and then decline steeply in their early years. Older vertical wells in the Cotton Valley or the East Texas Field, like many in Gregg County and Rusk County, decline slowly and pay a steadier check.
That means a new well can make your check look bigger than it will be next year. An honest buyer prices in that decline. An older, flatter check is often worth more per dollar of income, because it is more predictable.
2. What is coming that is not paying yet
Your check only reflects wells that are producing now. A buyer also looks at what is permitted, being drilled or completed nearby but has not started paying you. Permits in your unit, a rig working the next section, or a deeper formation nobody has drilled under your tract can all add value beyond the current check. The Texas Railroad Commission publishes permits and well records, so this part is not a secret. You can look at the same data we do.
3. Your lease terms
The lease decides how much of the production reaches you. A few terms matter most:
- Royalty rate. Higher royalty, more net royalty acres, more value.
- Deductions. Some leases let the operator take post-production costs out of your share. Others do not. Two owners with the same royalty rate can get very different checks.
- Depth and Pugh clauses. These can limit a lease to certain depths or acreage, so rights outside them may be free to lease again. That can matter a lot in stacked areas.
If you are not sure what your lease says, look it up at the county clerk or ask us to pull it.
Non-producing minerals: priced on what could happen
If nothing is paying, there is no check to multiply. Value depends on what is around you: whether operators are leasing, whether there are permits or producing wells close by, and which formations sit underneath. Minerals in an active area can carry real value. Minerals far from any activity may not be worth much today. We will tell you which one yours is.
Why rules of thumb mislead
You will hear people quote a price per acre. Treat it with care. A per-acre number ignores your royalty rate, the age of the wells, what is coming and what your lease allows. Two tracts across the road from each other can be worth very different amounts. The only number that means anything is one built on your interest.
How to compare two offers
Getting more than one written offer is the best way to know the market. When you line them up, look past the headline number:
- Net to you. Are there fees, commissions or closing costs taken out? Our offers have none.
- What is being conveyed. Is the deed for the producing interest only, or for everything you own in the county, including depths and tracts you did not mean to sell? Read the legal description.
- Is the offer firm? Some offers drop after "due diligence." Ask what could change the number and why.
- Who is buying. A direct buyer with its own money, or a broker who will shop your interest to someone else?
- Is it really a sale? A document that looks like a lease can be a deed. Know which one you are signing.
Taxes on a sale depend on your situation. Talk to your accountant before you sign anything.
Ask us to show our work
When we make an offer, we show you how we got there: the wells, the decline, what is permitted nearby and the multiple we used. If you get a better offer somewhere else, take it. If the right answer is to keep your minerals, we will say so.
To get a number on yours, call or text (936) 289-3438, or send us the basics through the form on our home page. A recent check stub is the most useful thing you can send. You can also start from your county page.
This article is general information, not legal or tax advice. Talk to your own attorney or accountant about your situation.