Seller Beware!!! The Pitfalls To Be Aware Of In Mineral Sales

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.