Negotiation Tips for Mineral Owners

Negotiation Tips for Mineral Owners

As a mineral owner, deciding how to get the most from your asset can be stressful. You want to make sure you are getting the best deal, but all of the paperwork and complexities can be overwhelming. Yoann Hispa, CEO of PetroValues, shared some insights with us, from his many years of experience, to help you rock your negotiations.

Deadlines “Shhhhmeadlines”

Deadlines on a purchase offer are often a pressure sales tactic that result in a low sales price. Keep calm in this situation, and don’t allow the urgency to impact your better decision making process. Professional interactions should involve clear communication with room for questions and flexibility within agreements.

“I know it like the back of my hand”

Back of the envelop calculations, similar to (production)(oil price)(number of wells) = value, are very inaccurate. There are many factors that influence the calculation of mineral worth. Each deal deserves a fully engineered and technical analysis of the specific acreage. This is the best way to ensure you are getting a fair deal.

 

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A Dollar Today? Or a Dollar Tomorrow?

Money is worth more today than tomorrow (or some time in the future). When reading a deal, consider the present value of money. One thousand dollars of production royalties in 30 years is not equivalent to one thousand dollars in your pocket today. The oil and gas market is volatile, and the future interest in developing your minerals is unknown. Keep this in mind when reviewing payment and development proposals.

 “Good Deal?”

The interests of buyer and sellers are not always aligned.  Buyers want a deal. When it comes to your minerals, don’t assume the buyer is offering a number that reflects the mineral value. It is always good to get a credible, third party (unbiased), valuation. This way, you will understand what your minerals are worth, before discussions, and can flex some negotiating power.

 

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Rollercoaster of Commodity Prices.

Oil and gas prices effect the value of your minerals. When commodity prices are high, and companies are drilling wells, your minerals will be worth more than when prices are low. If commodity prices decrease, drilling and royalty payments may also decrease, even if your minerals are leased. Commodity prices effect all activity in the oil and gas industry. Check out the latest in OPEC news here. 

Permits are Paper. Rigs are Real.

Operators may permit wells but never actually drill them. It is common for operators to apply for many drilling permits, only to have plans change due to unforeseen challenges such as capital restraints. New well performance can also influence how future acreage is developed (number of wells drilled, completed and produced). Government restrictions, or changes to existing regulations, can slow down or expedite the operators ability to develop acreage. Understand that outside forces can affect the value of possible future royalties.

Yoann Hispa is CEO and founder of PetroValues. He is past-President of Optimix Energy Corp where he worked as COO for Private Investors, Private Equities, and small E&P companies. His role included advising in oil and gas evaluations, acquisitions, divestitures, and drilling operations. Yoann has 15 years of experience in the oil and gas industry in an array of technical disciplines ranging from Geoscientist to Reservoir Engineer. While at Anadarko Petroleum Corp, Yoann worked on unconventional US Onshore assets, in International Exploration, and as Technical Team Lead of Wattenberg’s development. Yoann holds an Executive MBA from the University of Colorado, an MS in Petroleum Eng. from the University of Texas at Austin, an MS in Geomechanics from the University of Birmingham (UK), an MSc in Civil Engineering from ESTP (Paris, France), and a BS equivalent in Math/Physics. Yoann speaks fluent English, French, Spanish, and Czech.

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