Land use for oil

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
Post Reply
Topic Author
mrsbetsy
Posts: 180
Joined: Mon Jun 26, 2017 12:16 am

Land use for oil

Post by mrsbetsy » Sun Aug 11, 2019 8:09 pm

I just found out that my family bought oil rights on a property in West Virginia in the 1800s. I own 1/90th of the share. LOL! Apparently, every couple of decades, the property rights come up for renewal. Some poor soul has the responsibility to contact each shareholder (descendants of the original agreement) to let them know. My parents have been deceased for 20 years.

My uncle, who lives in W.VA, says this is legitimate. I sign the renewal contract and receive $50. My challenge is that when I pass, my two children will inherit their percentage and it will be split again amongst the heirs. I have no ties to this side of the family and I highly doubt my kids care.

I did a bit of bantering with the representative and asked what happens if I don't agree. He said if they don't get agreement from all, they would drill around the plot of land. (It's apparently fracking.)

I told him I would think about it. A couple of days later, I received paperwork in the mail. I called him and he said, "Well, we could buy you out if you'd prefer for $500."

My husband says, SOLD.

If my siblings become oil barons, I'm going to be pissed. <joking>

What would you do?

Bacchus01
Posts: 3024
Joined: Mon Dec 24, 2012 9:35 pm

Re: Land use for oil

Post by Bacchus01 » Sun Aug 11, 2019 8:24 pm

No way would I sell that for $500. $50 is easy insurance for something that could be worth a lot someday.

123
Posts: 4878
Joined: Fri Oct 12, 2012 3:55 pm

Re: Land use for oil

Post by 123 » Sun Aug 11, 2019 8:27 pm

Your children lose a bit of their family heritage if you sell out. For that sake alone I would probably hold onto it. Let them be a part of the "big oil" business.

If you do any research into "oil" rights there are a number of different kinds. Some people also own the land, some only the mineral rights, it can get complicated.
The closest helping hand is at the end of your own arm.

Grt2bOutdoors
Posts: 20976
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Land use for oil

Post by Grt2bOutdoors » Sun Aug 11, 2019 8:38 pm

Keep it. Don’t sell!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Lalamimi
Posts: 26
Joined: Mon Jun 24, 2019 4:22 pm

Re: Land use for oil

Post by Lalamimi » Sun Aug 11, 2019 8:41 pm

As a retired Landman, I say do not sell. Wait to see what the horizontal unit looks like and how your checks are for the next year. You can always sell to one of the relatives later or donate it to your church. You will be taxed on the royalties, by the way.

User avatar
LilyFleur
Posts: 342
Joined: Fri Mar 02, 2018 10:36 pm

Re: Land use for oil

Post by LilyFleur » Mon Aug 12, 2019 2:50 am

Are they going to drill on the land? It seems odd that you only get $50.

Ping Pong
Posts: 473
Joined: Fri Feb 20, 2009 12:51 pm

Re: Land use for oil

Post by Ping Pong » Mon Aug 12, 2019 5:49 am

So the two options are to receive $50 every 30 years or get a lump sum of $500. It sounds like you guys have been getting ripped off all these decades. Those two options don’t really jive with each other. The 200 heirs should put it out to bid with another oil company.

Other posters say to keep it because it may hit jackpot, but it sounds like it has already hit jackpot. You guys have just been letting another company keep it in exchange for 14 cents a month. This company is the one that coined the phrase, “laughing all the way to the bank.”

If the other 199 heirs have already signed for low amounts, then your signature for renewal could be worth tens of thousands. Each share might not be worth that much, but in this special case it’s as if you control everyone else’s share if one party can veto and everyone else signs for peanuts.

Someone else may have already figured this out which may be why there’s always some family member willing to track everyone down to sign. Poor soul.

In all likelihood, everyone else didn’t sign for peanuts. They probably negotiated a more reasonable price. Your side of the family, being out of the loop, may not have thought to. And the other side has no incentive to educate you. Especially if they know the last signee can get the best deal, and the size of the deal is dependent upon how much was agreed to by everyone else.

Luke Duke
Posts: 871
Joined: Tue Jun 18, 2013 11:44 am
Location: Texas

Re: Land use for oil

Post by Luke Duke » Mon Aug 12, 2019 8:24 am

Are you sure that it isn't $50/yr?

not4me
Posts: 638
Joined: Thu May 25, 2017 3:08 pm

Re: Land use for oil

Post by not4me » Mon Aug 12, 2019 9:02 am

As I started to read, my 1st thought was sell. I have personally avoided situations in which >1 family member is equal partner (& advised many more to do so).

But the story wasn’t adding up & I think before I agreed to sell that I’d like to understand better. You said your family bought rights…So, who is paying you now & for what? I would think for rights to be renewed, you’d be paying. So, who is this a representative of? An intermediary between property owner & oil rights owner? What do they get for the $ they pay you?

I get that if all 90 don’t agree, they drill/frack elsewhere. But why does the $ amount not change depending upon that? And it seems odd that you haven’t mentioned proving you are legit descendent.

If you have 90 “owners” & no legal structure (like an LLC, etc), then it sounds like you have no spokesperson, negotiator, etc. You take what’s offered. But is there any liability involved? What if there is an environmental problem?

So, I’d personally want to understand more about what it is I owned before I sold it & understand the value. Or, I’d take the $ & run without looking back.

deikel
Posts: 693
Joined: Sat Jan 25, 2014 7:13 pm

Re: Land use for oil

Post by deikel » Tue Aug 13, 2019 3:38 pm

A lot of things don't add up here IMO

If they offer you 500 USD to buy your share, then they would be willing to pay that to any of the 90 holders, so there is someone willing to shell out 45k to get the mineral rights. You don't say how large the property is that you hold the mineral rights to, but this would have to be either a lot of land (which means they can not drill around it) or the land location is valuable for their drilling plans.

Mineral rights don't come up every 30 years, they come up when the last contract ends or when someone wants to buy/lease the rights - so something has happened and this company is interested in giving you money (and the other 89) to have the rights to the minerals...

They can only drill around your property to some degree. Even if the drilling is not on your property, the material taken out of the ground might still come from your property ....and its actually better if they destroy someone eases land but you get the money from the minerals taken out underneath your property.

I would look closely at the contract, take the 50 USD and make sure you get a good percentage if they start taking material out...its worth the lottery ticket and the 'lost' 450 is nothing you had before, but you gain a fun story and a chance of 'free' education for the kids...
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

megabad
Posts: 2167
Joined: Fri Jun 01, 2018 4:00 pm

Re: Land use for oil

Post by megabad » Tue Aug 13, 2019 4:04 pm

mrsbetsy wrote:
Sun Aug 11, 2019 8:09 pm
What would you do?
Probably buy up all the land for $45k if that is the deal on the table and then sell the rights myself. If it is $50 per year per share then that is a 10% return assuming the land value is pretty stable.

MP173
Posts: 2002
Joined: Fri Dec 07, 2007 6:03 pm

Re: Land use for oil

Post by MP173 » Tue Aug 13, 2019 4:25 pm

Keep the mineral rights.

If you want to sell, contact me and I will bid $501.

Lots of frac activity in WV.

Full disclosure...I have mineral rights on family farm and receive monthly oil royalties. Not much, but it is family heritage and monthly cash.

Ed

psteinx
Posts: 3207
Joined: Tue Mar 13, 2007 2:24 pm

Re: Land use for oil

Post by psteinx » Tue Aug 13, 2019 4:29 pm

mrsbetsy wrote:
Sun Aug 11, 2019 8:09 pm
My uncle, who lives in W.VA, says this is legitimate. I sign the renewal contract and receive $50.

[...snip...]

I told him I would think about it. A couple of days later, I received paperwork in the mail. I called him and he said, "Well, we could buy you out if you'd prefer for $500."
How long is the renewal contract for? If it's $50/year, then selling for $500 doesn't sound so appealing. If it's $50 every 20 years, and the prospects for significant improvement to that rate are low, then getting rid of a minor asset at 10X what you'd make over the next 20 years sounds attractive.

In general, I'd be reluctant to try to wade too deep into a ~90-way family split on something like this. Sounds like a lot of hassle and possible family drama.

Post Reply