by Republic Ranches | September 24, 2014
Oil & Gas in Texas and what it means for Land Values
It’s fun to think about J.R. Ewing out there with the smile, the scheme, and the Stetson – but in real life, the realm of oil and gas is a difficult one to understand. What many prospective landowners wish to know is how mineral interests effect land values.
Most Buyers and Sellers of Texas rural real estate know generally about the mineral estate that is associated with the real property they are looking at buying or selling. But what they don’t always know or understand is who actually owns the mineral estate, the legal status of the mineral estate being dominant, how much value it may or may not add to the land, how current or potential income streams may provide financial benefits to mineral/royalty owners, how current or future oil & gas development may impact the surface owner’s use of the land and lastly how the worldwide oil & gas commodity markets and advancing technology may impact development and production.
Historically a high percentage of prospective buyers heading into their real estate purchase, did not fully assess the subject of minerals and mineral estates; however, the expansion of shale related development and the increase in oil prices (increasing conventional activity as well) has changed the dynamics.
Today, Sellers are very cautious about selling their owned mineral rights unless they feel they are being adequately compensated for that portion of their conveyance and even then they tend to want to hold on to some portion just in case the next “Eagle Ford Shale” play happens to be under the ranch; potentially providing significant financial windfalls. Similarly, buyers have become even more focused on mineral rights, executive rights, royalty interests, surface use protections and O&G development activity and prospects in a given area.
In all cases, world and national commodity markets drive prices for oil and gas and ultimately drive the level of exploration for and production of minerals across Texas. Much like the rapid growth in farm conversions and farmland values driven by commodity pricing, the value of minerals associated with real estate is tied to world commodity pricing.
An oil company that’s interested in leasing your minerals, does so because they believe that they can find oil and/or gas under the land. Republic Ranches’ team and their network of professionals in various areas of landownership, can help both buyers and sellers better educate themselves in regards to mineral rights, surface rights and the economic pressures that come with the growth and dip of a commodity’s value. In that way, they can better understand the risks and the rewards of what they’re getting themselves into.
Texas is a diverse state with many locations offering all different kinds of prospective owners their choice, with some preferring to go the route of investing in land where oil production is more likely and could bring them more return assuming they can get some minerals with the purchase. Others may want to locate away from current activity and surface use related headaches but still get some minerals, “just in case.” Whether buying or selling land in Texas, the mineral estate is an important component in any transaction and needs to be considered by all parties to the transaction.