SELLING YOUR MINERALS OR ROYALTY?

05 May Selling Your Minerals or Royalty?

DO NOT SIGN a Purchase and Sale Agreement (PSA) that:

1. Commits you to sell at a stated price when the buyer in the PSA is not equally committed to buying at the stated price. This is the case when the PSA states that it is subject to buyer’s upper management or board approval. If there is such a provision, require the buyer to demonstrate proof of such management or board approval prior to your execution.
2. Allows the buyer to exclude a portion of the property from the closing. The exclusion could totally change the monetary benefit of your decision to sell, and force you to sell the ‘marketable’ portion, leaving you with a less marketable and valuable portion. If the buyer insists on such a provision, include a requirement that buyer must close on whatever percentage of the property you would require to consummate the sale.
3. States you will indemnify the buyer from any claims related to your property. This is a very unusual provision for mineral or royalty sales, and one that could needlessly expose you to future litigation.
4. States the venue for any litigation will be in the home county and state of the buyer, or that waives your right to a trial by jury. Normally, litigation would be filed in the county and state of the minerals being sold, and a jury trial might be to your benefit.
5. Extends the closing date until you cure any title requirements. While it is normal and essential that a seller cooperate and assist the buyer in curing seller’s title, don’t allow the buyer to force you into spending considerable funds to cure title, nor do you want the PSA extended indefinitely until the title is cured.
6. Releases buyer from the contract for any reason other than title failure. Otherwise, you are granting to buyer an option to purchase that prevents you from accepting better offers that you may receive during the due diligence period, while buyer would have the option to walk away from the deal if commodity prices, available financing, nearby drilling activity, or other market forces took a downward turn prior to the closing deadline.
7. States the seller makes representations of any facts regarding liens or any other encumbrances or limitations to the title, other than the amount and type of mineral or royalty interest to be sold. It is buyer’s responsibility to determine whether the title is clear. It would be advisable to state the interest is presently subject to an oil and gas lease if that is the case.