Who buys oil and gas royalties?

Oil and gas royalties are bought by the same five categories that buy minerals: direct buyers who hold, funds and public royalty companies, brokers, marketplaces, and volume mailers. What changes with a producing royalty is that everybody can see the cash flow, so the disagreement moves from whether it is worth something to how long it will last and what price it gets paid at.

What a royalty buyer is actually buying

Not acres. A royalty buyer is buying a stream of monthly payments that will decline, and then continue at a low level for a long time, and then stop. Almost the entire disagreement between a low offer and a high one lives in three assumptions:

1. The decline rate. Shale wells fall hard in the first two years and then flatten. Conventional wells decline slowly from the start. Applying a shale decline curve to a fifty year old conventional well produces a number that is far too low, and it happens constantly because the formula does not know which one you own.
2. The price deck. Spot price is close to irrelevant to a twenty year stream. What matters is the forward curve, and a buyer using a flat deck has made a conservative choice they should be willing to explain. See the curve and the headline.
3. Undrilled locations. The part nobody puts in the letter. If your tract has remaining locations, a large share of true value sits in wells that do not exist yet, and a buyer who prices only your producing wells is buying that upside from you for nothing.

Everything else is arithmetic. Ask for those three numbers and most offers explain themselves.

The multiple, and why the number sounds bigger than it is

Royalty offers are usually built as a multiple of recent monthly income. A buyer looks at what you received over the last three to twelve months, adjusts for anything unusual in it, and applies a multiple.

Two things about that multiple are worth knowing before you agree to one:

• It is a payback period in disguise. A 48 month multiple means the buyer expects to be repaid in roughly four years, and to own everything after that forever. Whether that is a good trade for you depends entirely on how long your wells will actually pay.
• The base month matters as much as the multiple. A high multiple on a suppressed month can be worth less than a lower multiple on a normal one. Check which months they used, and whether any of them included a one time adjustment or a period the well was down.

The offer checker will convert any specific offer into the payback period it implies and tell you what the buyer must be assuming to justify it. It deliberately will not tell you an offer is too low, because we cannot know that from a number alone.

The buyers, and what each one wants from a royalty

Direct buyers who hold

Buying for their own account and keeping the stream. Their return is the royalty, so their interest is in being right about the decline and the remaining locations. They are usually willing to show the work because they had to do it.

That is our category. Berlin Resources LLC takes title and holds, which you can verify in the grantee index of any county we have bought in.

Public royalty companies and funds

Publicly traded royalty vehicles and private equity backed funds. Many of them need to show growing distributable cash flow, which makes producing royalty in a core area genuinely attractive to them and makes small or non core packages a poor fit. They frequently have a minimum deal size that is not published anywhere.

Brokers and marketplaces

They do not buy your royalty. They introduce it to people who do, for a commission or a listing fee. Competition can genuinely raise your price on a clean, well documented producing royalty. On a small or complicated one, the same process can cost you time and leave a shopped interest sitting in the market. See broker or direct.

Volume mailers

Royalty owners are the easiest list in the business to build, because your name and interest sit in public records and in division order filings. That is why the mail arrives. A printed number that appears before anyone asked to see your check stub was produced by a formula, not by a valuation.

Types of royalty, and whether they are buyable

What you own	Buyable?	The thing that changes the price
Landowner royalty on minerals you own	Yes, deepest market	Decline rate and remaining locations
NPRI	Yes	Whether it is fixed or floating, which can change value by multiples
Overriding royalty (ORRI)	Yes, at a discount	It terminates with the lease, so lease term and held status are everything
Royalty in suspense	Yes, but slowly	Whatever is causing the suspense has to be cured first. See unclaimed royalties
Shut in or non producing	Sometimes	Priced as future potential. See non-producing minerals
Working interest	Different market	It carries costs, so it is valued net of them and buyers are fewer
Wind and solar payments	Separate buyer pool	Contract term and escalators, not geology

You are allowed to sell part of it

The most common thing a royalty owner does not know. You can sell a fraction of your interest and keep the rest, and it is an ordinary transaction rather than a favor. That is often the right answer when you need a specific amount of money and have no view on where prices go, because it takes the timing question off the table entirely.

If a buyer will only take all of it, that is a fact about them, not about your options.

Before you answer anyone

1. Find out what you own. Your check stub gives you the operator, the wells, and your decimal. The statement decoder reads it line by line.
2. Ask the three questions: decline rate, price deck, undrilled locations.
3. Get one competing number with the reasoning shown.
4. Check what your state already owes you on timing and interest, at royalty payment laws by state. Some problems that look like a reason to sell are just a payment the operator owes you.
5. Read when not to sell before you read any offer.

Related

• Who buys mineral rights, and the same question by state
• How much are mineral rights worth
• The mineral buyer directory
• Questions to ask a buyer
• Division orders and taking your royalty in kind
• Taxes when you sell

Berlin Royalties is the trade name of Berlin Resources LLC, a mineral buyer and a landman shop in Tulsa, not a law firm, a tax advisor or a commodities analyst. We are a potential counterparty to any sale you make. Nothing here is a price forecast or investment advice.