Minerals on Mission: To Sell or Retain
May 3, 2022 - A charity must determine whether selling or retaining gifts of mineral interests will provide the greatest benefit over the long term. While mineral interests may be readily sold through various brokers, most buyers will only be willing to pay a purchase price of approximately 1½ to 2 times annual production. As a result, it will most often be in the best interest of the charity to retain ownership of the mineral interest. Since nonprofits usually do not have the resources or expertise to effectively manage these interests, they often retain a third party to do so.
A minerals management group should provide active management, administration and negotiation so that the charity will realize the greatest possible benefit from its mineral interests. Their services will include:
- Active management, focusing on all phases of the oil and gas production process from the initial negotiation of the lease interest through the lifetime of a producing well or field
- Continual review of all division orders to ensure that the charity’s interest is accurately credited and identified
- Monthly review of revenues to confirm that the charity is being paid properly
- Monitoring of active leases to determine the producing status of the leasehold and to obtain releases when appropriate
- Negotiating the maximum bonus and royalty for non-producing acreage should leasing activity begin
- Maintaining all undeveloped acreage records and all shut-in well requirements
- Coordinating any easements or permits that affect the rights of the surface owner
- Monitoring all oil and gas lease terms and securing timely releases for expiring leases
THE HIGHGROUND ADVANTAGE
In addition to our experienced team’s proactive management, supported by the sophisticated oil and gas software MineralWare, partnering with HighGround as your minerals manager includes the following advantages:
- CLIENT FOCUS: HighGround is a nonprofit that has served nonprofits exclusively for nearly a century. Independent of a public company, we do not have the financial pressures associated with one, and in every negotiation, we are free to focus on what is best for our client partners.
- BUNDLING ACREAGE: HighGround manages over 2 million gross mineral acres. When approached with a lease offer, we can look for other available client acreage to lease nearby to maximize the offer.
- COMPETITIVE FEES: HighGround’s minerals management fees are inclusive of our legal team’s services. We won’t nickel and dime you for legal advice and review of contracts and acceptance policies.
CLIENT IMPACT STORY
In the 1930s, a landowner sold her ranch in west Texas but retained the mineral interests. Twenty years later, she gifted those mineral interests to a charity that was partnered with HighGround for asset management. The property produced $10,000-50,000 in oil and gas income per year for the charity until 2012. In the next five years, the property averaged $700,000 a year. In 2017, an oil production company offered this charity $7 million for their mineral interests, and the charity considered selling, as an offer of nearly 10x the average annual cashflow seemed like a good thing. However, our HighGround minerals team researched and learned that new horizontal wells had been permitted for the area. We knew that meant drilling was about to increase substantially in the region, so we advised the charity not to sell their mineral interests. In the four years since they received the offer to sell, the charity has made over $15 million in oil and gas income, and their wells are still booming.
A gift of mineral interests can make a profound impact on a charity's important work for generations to come. With the information in this series, we hope you feel even more equipped to make or receive such a gift. Call us at 214.978.3300 to learn more or to partner with us to put your minerals on mission.