What are the types of Companies that Buy Mineral Rights?
There are various types of companies that buy mineral rights, ranging from large corporations traded on wall street to private equity backed companies to small independent operators. These companies are usually involved in exploration, production, and development of oil and gas resources. They buy oil and gas royalties from mineral owners. While there are many things to consider when discussing mineral rights transactions, including determining fair market value, determining who a legitimate buyer might be, and understanding mineral property, the vast majority of mineral owners don’t know who they are marketing to and what those buyers look for in property.
Let’s discuss these types of companies, where they buy them, what they are looking for, and how they use them after the purchase.
Oil and Gas Exploration Companies
Oil and gas exploration companies can often buy rights from a mineral owner. These companies are primarily engaged in the exploration and discovery of new oil and gas reserves. They invest heavily in research, seismic surveys, and drilling to identify potential areas with high hydrocarbon prospects, often called shale plays. Exploration companies purchase mineral, oil and gas rights to gain access to these areas in order to sell those resources on the open market. They aim to discover new reserves, increase their production, and generate profits. These companies often have significant financial and legal resources (sometimes coming from private equity backed funds) in order to make a deal. They also have technical expertise and experience conducting extensive exploration activities.
Production companies are private companies involved in the extraction and production of oil and gas from existing reserves. They purchase mineral rights to expand their production capabilities and increase their reserves. These companies focus on maintaining and optimizing the production from existing wells and fields. They may also acquire mineral rights in regions with proven reserves to ensure a steady supply of oil and gas. Production companies often have extensive infrastructure and operational capabilities to manage the extraction and processing of hydrocarbons. As a result, they negotiate for royalty interests to increase their asset pool in order to sustainably produce oil and gas.
Integrated Oil and Gas Companies
An integrated oil and gas company is involved in all aspects of the oil and gas value chain, from exploration and production to refining, distribution, and marketing. These companies often have a global presence and operate across various regions. Integrated companies purchase mineral rights to secure long-term access to oil and gas reserves and ensure a consistent supply for their refining and marketing operations. They may also acquire mineral rights to diversify their portfolio and expand their exploration and production activities. They have huge negotiating power and can be intimidating for a mineral rights owner.
Independent operators are smaller companies that focus on specific regions or fields. They often specialize in the acquisition and development of oil and gas reserves in a particular geographic area. Independent operators purchase mineral rights to gain access to reserves in their target region and exploit them efficiently. These companies may have limited financial resources compared to larger corporations, but they often possess specialized knowledge and expertise in the specific region where they operate. For those looking the sell mineral rights, independent operators are more likely to deal on a fair price and deal with brokers who work to protect mineral owners during negotiations.
Investment Funds and Private Equity Firms
Investment funds and private equity firms often invest in oil and gas mineral rights as part of their portfolio diversification strategy. These entities purchase mineral rights with the aim of generating attractive returns on their investments. This can present itself in may different ways. Investment firms can be mineral buyers but they can also sell oil and gas royalties. They tend to care more about market value and getting the best price for the assets under management. They may partner with exploration or production companies to develop the resources or lease the rights to other operators. Investment funds and private equity firms often have a long-term investment horizon and may actively manage their mineral rights portfolios to maximize their returns.
Mining companies focus on extracting valuable minerals, such as coal, gold, silver, copper, or iron ore. They purchase mineral rights specifically for the purpose of mining operations. These companies may have specialized knowledge and technology for mineral extraction and processing. Mining companies can be some of the most prolific mineral rights buyers depending on the type of mineral they specialize in extracting. They have a working interest in creating value for buyers in the open market (selling valuable minerals for a variety of consumer products).
Land and Property Developers
Land developers may be legitimate buyers of mineral rights as part of their land acquisition strategy. They aim to develop the land for various purposes such as residential, commercial, or industrial use. While mineral rights might not be their primary focus, they see potential future value in having a mineral interest alongside the land. This can present a strategic advantage in the negotiation, and producing profits in the form of oil and gas royalties.
Royalty companies specialize in acquiring mineral rights and collecting oil and gas royalties from the extraction and production of minerals on the land. They do not engage in the actual mining or drilling operations but instead receive a percentage of the revenue generated by other companies that utilize the mineral rights. Therefore, these companies are only really interested in royalties. They well versed in the language of what a net royalty acre is and how that impacts profits.
Where Private Companies Purchase Mineral Rights
Companies buy oil and gas mineral rights in various regions globally, depending on their strategic objectives and resource potential. Some of the key regions where companies buy mineral interests include:
The United States is one of the largest oil and gas mineral producers globally, and companies actively buy and sell mineral rights in various states such as Texas, New Mexico, Oklahoma, Louisiana, and North Dakota. These regions have a long history of oil and gas production and are known for their vast reserves and favorable regulatory environments.
Canada is another significant player in the oil and gas mineral industry, with extensive reserves in Alberta, British Columbia, and Saskatchewan. Companies purchase mineral rights in these regions to access the oil sands, natural gas, and conventional oil reserves. Canada also offers stable political and regulatory environments, making it an attractive destination for oil and gas investments.
The Middle East is home to some of the largest oil reserves globally, and companies often seek to purchase mineral rights in countries like Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates. These countries have vast oil reserves and are expert mineral owners and sell oil and gas around the world. Oftentimes, price and value is set around the world when OPEC meets to discuss oil.
What are oil and gas companies looking for when buying mineral rights?
Mineral rights buyers have specific criteria they consider when evaluating potential acquisitions. Some key factors they assess include:
Companies look for regions with geological characteristics indicating the presence of valuable minerals or hydrocarbons. They assess the geological surveys, past mining activities, and exploration data to determine the potential for economically viable resources.
Ownership and Legal Considerations
Companies evaluate the ownership of mineral rights and associated legal rights and restrictions. They ensure that the seller has clear and marketable title to the rights and there are no legal disputes or encumbrances that could hinder their ability to utilize the resources.
Companies consider the current and projected market conditions for the resources they are interested in. They analyze factors such as supply and demand dynamics, commodity prices, and market forecasts to assess the profitability of potential acquisitions.
Infrastructure and Accessibility
Companies consider the existing infrastructure in the region, such as transportation networks, power supply, and available water sources. They also evaluate the accessibility of the land for conducting exploration, extraction, and transportation activities.
How do companies that buy mineral rights use them after purchase?
After purchasing mineral rights, companies may utilize them in various ways, depending on their specific objectives:
Exploration and Extraction
Companies that specialize in exploration and extraction will conduct geological surveys, seismic studies, and other assessments to identify the extent and quality of the mineral resources. They may then proceed with drilling, mining, or extraction operations to extract and process the minerals.
Leasing and Royalties
Some companies purchase mineral rights to lease them to other companies for exploration and extraction. They earn revenue through lease payments and royalties based on the volume or value of the minerals extracted. This allows them to generate income without directly engaging in mining or drilling operations.
Selling or Trading
Companies may purchase mineral rights with the intention of selling them to other companies at a higher price in the future. They may speculate on the potential appreciation of the rights based on market conditions, resource estimates, or changes in mining regulations.
Integration with Existing Operations
Companies with existing operations in the region may purchase mineral rights to expand their current mining footprints.
Selling Mineral Rights to a Legitimate Buyer
For mineral rights owners, it can be a daunting task to get those right sold. The market value is not easy to determine, mineral rights buyers can be hard to negotiate with and understanding how to get the right price in a fair deal is hard to do alone. This is why it’s important to rely on an expert to help you navigate the challenge to selling mineral rights. At the Mineral Auction, we can help. If you are interested in learning more about how we can help you turn your rights into money, contact us or call us at (512) 698-2802.