By Jennifer Hiller
San Antonio Express-News
Not long ago you could buy as much ranch land as you wanted in South Texas, with the mineral rights to boot.
Now that the Eagle Ford Shale formation has boomed? Not so much.
Mitch West, a farm and ranch agent with Phyllis Browning Co., said South Texas ranches are changing hands, but there’s a push-and-pull between buyers and sellers about minerals.
No one wants to let go of their mineral rights, but buyers are reluctant to purchase anything without at least some share in the minerals in case oil or gas is found on the property.
“If you buy a place and it doesn’t have minerals and drilling comes along, you get all the aggravation and none of the benefit,” West said.
That’s because the mineral estate is dominant over the surface estate in Texas, meaning those with only surface rights can’t stop oil and gas production if the mineral owners cut a deal with an oil and gas operator.
In addition, “in the past, there were certain areas of South Texas that were known for production. Now everybody thinks they’re in a mineral area.”
Over the years, most mineral estates have been divided among various heirs and sellers and buyers. During negotiations, West said sellers want to offer as little as possible to make a deal. “They put as little as they can — one-sixteenth or one-thirty-second,” West said. “In a lost of cases, that’s not enough. People want to have more control over the surface.”
But the oil and gas activity hasn’t stopped land sales.
“We’re seeing people that have been looking at ranches the last several years feel more confident about the economy,” said Merrill Swanson, an appraiser with San Antonio’s Dugger, Canaday, Grafe Inc. “They like ranches about an hour from San Antonio. Medina County and Frio and Atascosa County are benefiting, basically the northern fringe of the Eagle Ford. We’re also seeing sales farther south in Duval County. We’re hearing about sales in deep South Texas like Webb, Brooks and Jim Hogg (counties).”
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The market for Texas land had taken a dip with the drought and the 2008 recession, although institutional investors, commodity prices and the oil and gas industry helped keep values relatively stable.
Owning a slice of Texas reached an average of $2,512 per acre in 2012, up from $2,281 the year before, according to the Real Estate Center at Texas A&M University.
Some of the traditional land buyers in Texas — oil and gas executives — are looking for ranches. “I think the energy executives are still good ranch buyers,” Swanson said. “They’re still very active in the market.”
Swanson said another group also is buying property: mineral owners.
“People that are royalty owners are starting to buy land,” he said. “I was wondering when they were going to buy land. Some are fed up with the oil field and they’re going to other areas. I think it took a little while for the money to start flowing out of the ranches in the Eagle Ford.”
A healthy dose of skepticism about the oil and gas field is still pervasive in South Texas, and Swanson said that even those benefiting financially have been cautious about spending.
“A lot of people were skeptical anyway,” Swanson said. “They’ve seen it come and go. It could poop out just as fast as it started.”
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But “now they’ve got a good history of royalty income,” he said. “ I have seen a lot of new fences built and new stock tanks and houses. It has taken some time for the money to be spent.”
Buyers have to consider how they want to use the surface of the property — whether for cattle, hunting and so on — and how oil and gas production could affect that.
“The market is good, but minerals have become a big factor in being able to sell these places.
“It’s not just on your place,” West said. “It’s what it does to the area. The county roads turn into junk because of all the trucks. Unless the oil companies help, it’s hard for the county to keep up. If you get a little rain, you’re back to potholes. The oil and gas is a wonderful thing, but for a surface owner trying to use his land it’s more difficult.”
Still, West said a lot of out-of-state buyers are in the market.
And there are some deals to be had.
“You can get a bargain if you forgo the minerals. The sellers will have to discount the price quite a bit. Some of this land can still be enjoyed. It’s not like it’s a drain for the rest of the property forever,” West said.
Express-News archives contributed to this report.
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