If you own mineral rights, you have probably received an offer letter. Maybe several. Some are from companies you have heard of. Others are not.
Before you sign anything, it is worth asking a few questions. The right questions will help you understand who you are dealing with, what you are agreeing to, and whether the terms are fair. Here are the ones that matter most.
Are You the End Buyer?
This is a good place to start. Some companies that send offer letters are not actually buying your minerals. They are brokers or middlemen who put your minerals under contract and then flip the deal to someone else at a higher price.
You end up selling for less than your minerals are worth, and the middleman pockets the difference.
This is more common than most owners realize. Our article on no-cash flipping explains how it works.
A straightforward buyer should be able to tell you that they are purchasing with their own funds and that they intend to hold the minerals. If they hedge on this question, that is useful information.
Related: check whether the purchase agreement allows the buyer to assign the contract to a different entity before closing. Even if the company you are dealing with checks out, an assignment clause could mean you end up closing with someone you have never heard of. If the agreement allows assignment, you should know that going in.
How Long Have You Been Buying Mineral Rights?
Experience matters. A company that has been buying minerals for years will generally have a smoother process, better title work, and fewer surprises at closing.
Ask how long they have been in business and how many transactions they have completed. A newer company is not necessarily a bad one, but you should know what you are working with.
How Did You Come Up with This Offer?
A serious buyer should be able to explain, in plain language, why they are offering what they are offering. The answer does not need to be a detailed engineering report. But it should be more than “we like the area.”
Most mineral valuations are based on expected production, commodity prices, and a discount rate applied to future cash flows. If you are not familiar with how minerals are valued, our article on how much mineral rights are worth covers the basics.
Assume the offer is negotiable. Most are. If the buyer’s explanation makes sense but the number still feels low, counter it. The worst they can say is no.
A buyer who cannot or will not explain their offer is not necessarily dishonest. But transparency here is a good sign, and evasiveness is a bad one.
What Kind of Deed Will I Sign?
The type of deed determines what you are warranting (or guaranteeing) about your ownership when you transfer the minerals.
- A general warranty deed means you are guaranteeing clear title going all the way back in the chain of ownership, even before you acquired it.
- A special warranty deed means you are only guaranteeing that no title problems arose during the time you owned the minerals.
- A quitclaim deed offers no warranty at all. You are transferring whatever interest you have, if any.
Most mineral transactions use a special warranty deed or a deed with limited warranty language. If a buyer asks you to sign a general warranty deed, understand that you are taking on more risk. Our article on understanding warranty types goes into more detail.
What Are the Terms of the Purchase Agreement?
The purchase and sale agreement (PSA) is the contract that governs the deal. It is separate from the deed. Before you sign it, you should understand a few key provisions:
- Diligence period. Most buyers include a period (often 30 to 90 days) during which they can review your title and back out of the deal for any reason. During this time, you are typically locked in but the buyer is not. Ask how long the diligence period is and whether you can shorten it.
- Contingencies. Are there conditions that must be met before the buyer is obligated to close? Title approval is standard. Anything beyond that, you should understand.
- Title defects. How does the buyer determine whether a title defect exists, and what happens next? Some agreements give the buyer broad discretion to declare a defect and then reduce the purchase price or walk away without giving you the chance to fix the issue or renegotiate. Ask how title defects are defined in the agreement, whether you will have an opportunity to cure them, and what happens to the deal if you cannot.
- Effective date vs. closing date. The effective date determines when revenue shifts from you to the buyer. The closing date is when money changes hands. These are not always the same.
- Indemnification. Some agreements include broad indemnification language that could hold you responsible for things outside your control. Read this section carefully, or have an attorney read it.
- Exclusivity. Does the agreement prevent you from talking to other buyers while the deal is open? Many buyer-drafted PSAs include exclusivity or non-solicitation clauses that lock you in for 60 to 90 days. If you have signed an exclusivity clause and the buyer walks away at the end of diligence, you have lost months of leverage. Know whether this language is in the agreement before you sign it.
Our article on purchase and sale agreements breaks down the typical provisions in a mineral PSA.
How and When Will I Be Paid?
This sounds simple, but the details matter.
- Payment method. Will you be paid by wire transfer, company check, or something else? Some buyers use bank drafts, which look like checks but function as contracts. They give the buyer additional time (and sometimes additional rights) before payment is final. Our article on bank drafts explains why this matters.
- Timing. When does payment happen relative to signing the deed? Some buyers pay at closing. Others pay after the deed is recorded. Ask when you will receive funds and what triggers the payment.
- Escrow. Will a title company or escrow agent handle the closing? Having a neutral third party manage the exchange of documents and funds adds a layer of protection for both sides.
Who Handles Title Work and Closing Costs?
In most mineral transactions, the buyer handles and pays for title work. But not always. Ask who is responsible for:
- Ordering and paying for the title search or title opinion
- Recording fees for the deed
- Any other closing costs
If the buyer expects you to cover any of these costs, that should be disclosed upfront.
Check Reviews
Before you get deep into a transaction, look the company up. Check the Better Business Bureau and Google reviews. These are not perfect sources, but patterns are telling. A company with a history of complaints about slow closings, lowball offers, or unresponsive staff is worth knowing about before you sign a purchase agreement.
Will You Put Everything in Writing?
Any legitimate buyer will put the terms of the deal in a written agreement before you sign a deed. If someone asks you to sign a deed without a written purchase agreement, or pressures you to act before you have had time to review the documents, walk away.
You are entitled to take the agreement to an attorney. You are entitled to ask questions. A buyer who discourages either of those things is not acting in your interest.
Get More Than One Offer
At the end of the day, you want to get the best price. The single most effective way to do that is to get offers from multiple companies. Different buyers have different models, different risk tolerances, and different views on what your minerals are worth. You may be surprised by the range.
If a buyer pressures you to sign quickly or discourages you from shopping the deal, that tells you something.
The Bottom Line
Selling mineral rights is a significant financial decision, and you do not need to rush it. The questions above are not trick questions. They are basic, reasonable things that any legitimate buyer should be willing to answer.
If something feels off, trust that instinct. Get a second opinion. Talk to an attorney who specializes in oil and gas transactions. A general practice attorney may not know much more than you do about mineral conveyances, and they do not always admit it.
Caddo Minerals buys mineral rights across the US. If you are exploring your options, we provide free, no-obligation evaluations.