Seller Beware!!! How Mineral Companies Work Together.
Over seventeen years of advising on the sale of Haynesville Shale minerals, I’ve learned a thing or two about the process. I see and participate in enough sale offers and negotiations to have a pretty good idea of the value of minerals by specific location. Details matter as to fair market value. Not just by location but by the terms of the underlying lease or leases.
Most recently, it has become clear to me just how interconnected are the mineral companies that make offers to purchase your mineral rights. For those with professional assistance, this is likely no surprise but those without that assistance are likely unknowing in how mineral companies communicate and cooperate with one another to make a purchase.
Several instances that I have been witness to lately confirm this interconnectedness. When companies compete for the same mineral interest, they often talk about it among themselves. The focus is to pay as little as possible. That is because they flip those acquisitions to other companies for a profit. That makes acquiring mineral rights as cheap as possible the means to achieve the highest profit. A mineral acquisition may get flipped multiple times before it ends up with a mineral company that seeks to hold it long term.
When an interested seller shares the amount of offers received and the company or companies that have made those offers, the connection and cooperation between mineral companies can become a problem for achieving the best sales price. I think for many this is not obviously a potential problem so they freely provide that information. Here’s what mineral companies can do with that knowledge. Think of the mineral space as a pyramid with a small number of buyers at the top with tremendous amounts of capital to deploy. At each lower level are other mineral companies who are funded by those at the top of the pyramid. The offers you receive come from the lowest level of that pyramid. Those companies follow the acquisition menu provide by those at the top and do the basic research to find mineral owners with assets that fit the acquisition strategy. Then those lowest level companies send offer letters or make phone calls to mineral owners.
When an offer receives a response, the mineral companies seek to strike up a dialogue to determine if there is a willing seller and just how little the offer needs to be to get an agreement to sell. Where there are multiple offers, the mineral companies want to learn as much as possible about the companies under consideration and the amount of their offers. Think about what happens when two companies are pursuing the same sale and are funded by the same mineral company higher up the pyramid. That funding company does not want to be bidding against itself. Therefore, the collusion begins. I have seen companies stop making better offers so that an associated company can be the top offer. If you were to follow the mineral deeds recorded in the public record as I do, you would see how those companies share in the purchase of mineral rights. One company will make the offer and get the purchase but the mineral deed will split the minerals among two or more companies. Then those companies will assign all or a portion of the minerals they acquire to one or more other companies. The mineral acquisition makes its way up the pyramid. I can follow multiple assignments from the company that buys the minerals to the company that does the funding and holds the minerals long term.
The collusion that exists in the mineral space works to keep sellers from taking the middle men out of the equation in search of a better sales price. I’ve experimented with attempting this as have some of my savvy mineral clients who have the benefit of deep knowledge and the help of experienced professionals. Neither they nor the average mineral owner has a chance to accomplish this. The cooperation and interconnectedness of the mineral space does not allow for it.
If you ever consider a sale, be wise. Get professional help and do not under any circumstance share detailed information with mineral companies making you offers.
Views: 1283
Replies to This Discussion
-
Permalink Reply by Dave Coleman on
-
Very informative, thanks.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
You're welcome, Dave. I've seen too many people including experienced businessmen and women and lawyers make the mistake of thinking they are setting up competition between multiple mineral companies in an effort to get the top price. The collusion can take many forms. I've seen a couple of companies working with a third by sending lower offers than their associate. I've seen offers be rescinded or lowered so that an associate can have the highest offer. When the mineral deed arrives there are multiple grantees not just the company that made the winning offer. Or after the winner gets the mineral deed, they assign a portion to their associates. I've come to understand that many mineral companies that the inexperienced would take as competitors are actually communicating with each other daily on the deals they pursue.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Got an email from an experienced professional who works for mineral owners.
I’m seeing more cross-collusion on a deal.
-
Permalink Reply by w.r. frank on
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Ah yes, thanks for the reminder. Where great riches are at stake, ethics take a back seat. In regard to selling minerals, just imagine the profit margins in deals that can go through multiple hands with each making a profit.
-
Permalink Reply by Tar Heel on
-
What exactly is "detailed information"? I had one company want to see my most recent check stub. Is that too detailed?
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
There are valid reasons for requesting a check stub because it includes your eight digit royalty fraction. That is what minerals companies are buying so it makes sense that they want to see it. The detailed information I am warning about is sharing with any mineral company the other offers you have received and what companies made those offers. That prevents them from collusion.
We have discussed many times the fact that most mineral lessors do not understand what that eight digit number means. It is simple math if you have the right inputs. The eight digit number is derived from the number of surveyed acres in the tract in which you own the minerals divided by the number of total acres in the unit times your the royalty fraction in your lease. That should match closely at least to the seventh and eighth place decimals on your royalty statement.
Many payment decimals are not correct. I fought for a couple of years to get the state to require unit surveys be entered in the database, SONRIS, so that mineral owners could check their decimal fraction. Those unit surveys show the tract acreage and the unit acres and allows all mineral lessors to calculate their correct decimal fraction.
The math looks something like this. Your tract is one acre so, 1/640 x .25 = 0.00039063. I'm rounding up on that eighth place decimal. Before 2018 there were 850 Haynesville unit surveys that were not in the database and were long delinquent. The regulations called for unit surveys to be sent to the state within 90 days of first production. The delinquent surveys were anywhere from a few years delinquent to ten plus. The Haynesville operators withheld that information and the state allowed them to until I made a point of lobbying to get the state to enforce the rules. Now over 99% of those unit surveys are available on SONRIS and anyone can view them.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Although I don't have a problem with an interested seller sharing a royalty statement, I do think it is worth considering what a mineral company may do with that information. Here again this is about companies sharing information regarding a potential acquisition. A mineral company seeking to buy your minerals could share that royalty statement with their cooperating associated mineral companies and request that they use that information to make you an offer that is lower than the one they have made.
It is difficult to describe all the ways that collusion can occur between mineral companies. Do not think for a moment that they are all competitors.
-
Permalink Reply by Tar Heel on
-
Thank you for that. I remember a few years back getting a nice lump sum check because our decimal had been wrong.
Where in SONRIS can we find those unit numbers? We have been receiving payments on a new well, and I can't quite make the numbers work. They are close, but I can't figure out where the discrepancy is.
Thanks, again.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
I don't know if this will work but let's give it a try. The link below should take you to the search page for unit surveys. What you need is the four digit field code and the unit designation. You can find those on the SONRIS well file for the well that you are questioning. You search by the field code and then scroll through the unit surveys until you find the unit for that well. It will be something like HA RA SUA or JUR RA SU53. If you have trouble, I will look it up for you.
https://sonlite.dnr.state.la.us/ords/r/sonris/ucmsearch/home
-
Permalink Reply by Bill on
-
When we leased a few years back, AZUL and SWN were making offers. I told them what we wanted and AZUL came closest to our asking price and royalty%. I did ask SWN if that was their final offer but did not disclose how much AZUL offered. I have no idea if they already knew or not but even though we went with AZUL, SWN has it now. It wouldn't surprise me at all if they compared noted to negotiate the cheapest purchase price.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Bill, that could be the case but the assignment of leases or the swapping of leases among operators is somewhat different from what mineral companies do. Every "operator" wants to operate (drill and produce the wells) but in the competition for leases in a section the final result is that one company has the preponderance of the acreage. At that point the company that lacks the acreage to be designated as the unit operator by the state has a decision to make. Conflicts do occur and one instance happened a few days ago when Paloma and Aethon filed permits to drill that included the same section. Only one of those companies will get to drill the section in question. When a company loses the competition for the acreage required to be designated the unit operator, they have a couple of choices. They can pay their way in the well as a Working Interest, they can look to swap with another company to get the acreage required to be the operator in a different section or they can assign the lease to the company that is the unit operator. Conflicts between operating companies were quite common in the early leasing period of the Haynesville Shale so many sections ended up with multiple companies holding lease but only one was successful in being the unit operator.
Mineral companies only care that a capable company drills the wells and they prioritize acquisitions where new wells are indicated in the public record, a permit to drill has been issued or a well has a rig and is spud. In other words, an early return on their investment.
Support GoHaynesvilleShale.com
Top Content
Blog Posts
The Lithium Connection to Shale Drilling
Shale drilling and lithium extraction are seemingly distinct activities, but there is a growing connection between the two as the world moves towards cleaner energy solutions. While shale drilling primarily targets…
ContinuePosted by Keith Mauck (Site Publisher) on November 20, 2024 at 12:40
Not a member? Get our email.
Groups
-
Claiborne Parish
146 members
-
Natchitoches Parish
400 members
-
Rapides Parish
101 members
-
Fayetteville Shale
150 members
-
North Caddo Parish
358 members
-
Harrison County
166 members
-
Franklin County, Texas
9 members
-
Cass County, TX
120 members
-
Rusk County
97 members
-
Livingston Parish, LA
34 members
© 2025 Created by Keith Mauck (Site Publisher).
Powered by
