How Do Oil and Gas Royalties Affect Property Value in Divide County?

Divide County, tucked in the far northwestern corner of North Dakota, might appear unassuming at first glance, with its sprawling prairie landscapes, modest towns, and a quiet pace of life. But beneath the surface lies something far more dynamic: vast reserves of oil and natural gas, particularly within the Bakken Formation. For many landowners in Divide County, these hidden resources translate into mineral rights—and with them, oil and gas royalties.

Whether you inherited these rights or acquired them through a savvy purchase, understanding how oil and gas royalties impact your property’s value is crucial. And for those weighing options—keep, lease, or sell—making the right decision could significantly affect your long-term financial well-being.

Let’s explore how oil and gas royalties shape property value in Divide County, and what that might mean for landowners like you.

A Quick Primer: What Are Oil and Gas Royalties?

Oil and gas royalties are payments made to mineral rights owners by oil companies in exchange for extracting resources from beneath their land. Typically, these royalties represent a percentage of the revenue generated from oil and gas production. In Divide County, where energy development has surged in recent decades, royalty payments have become a financial lifeline—or opportunity—for many residents.

Mineral Royalties may be structured as:

• Lease royalties (typically 12.5% to 25% of production revenue)

• Override royalties (applied on top of leases, often held by previous owners)

• Non-participating royalties (a stake without development input)

While monthly royalty checks can offer appealing passive income, their effect on property value is more nuanced.

The Double-Edged Sword: Royalties and Property Value

At first glance, owning mineral rights seems like a surefire way to increase the value of your property. And in many ways, that’s true.

Enhanced Asset Value

When mineral rights are included with surface land, the overall asset becomes more valuable, especially in a resource-rich area like Divide County. Buyers or investors may be willing to pay a premium for producing rights, particularly if there’s consistent production and established infrastructure in place.

Uncertainty and Risk

However, the potential for royalties can also introduce complications. Property appraisals often struggle to assign a stable value to royalties, especially when production is volatile. Prices for crude oil and natural gas fluctuate. Drilling activity ebbs and flows. What seems valuable today might underperform tomorrow.

This uncertainty can negatively affect the liquidity and marketability of a property. In some cases, potential buyers may view mineral rights as a liability rather than an asset, particularly if:

• There’s ongoing litigation or title issues

• Environmental concerns exist

• Surface and mineral rights are split

In other words, while mineral rights can add value, they don’t always make a property easier to sell or finance.

Divide County: A Unique Energy Landscape

Divide County sits directly atop the Bakken Formation, one of the most productive shale plays in the United States. Though not as intensively drilled as nearby counties like Mountrail or Williams, Divide has still seen significant oil development.

According to the North Dakota Department of Mineral Resources, Divide County has hundreds of producing wells and many more permitted sites. This has created a surge of activity over the years, and with it, opportunities for mineral owners.

Local Factors That Influence Royalty Value:

1. Well Location and Production Rates
   Wells located near “sweet spots” of the formation typically generate higher initial production and better returns.

2. Operator Reputation
   The oil company operating the lease significantly impacts royalty value. Reliable operators with good production and payment records attract more attention from buyers.

3. Lease Terms
   Favorable royalty percentages, no-cost clauses, and lease duration play a large role in valuation.

4. Surface Use Restrictions
   Some landowners may be restricted from certain land uses due to drilling pads, easements, or environmental buffers, which can limit how the surface land is used or sold.

When Royalties Diminish Property Value

It’s easy to assume royalties only add value, but there are scenarios where the opposite is true.

1. Split Estates Create Complications

In North Dakota, mineral rights can be severed from surface rights. If a previous owner sold or retained mineral rights, the current surface owner might not benefit from any royalties at all. This can lead to legal entanglements, confusion during property sales, and diminished surface value, especially if the surface is disturbed by production.

2. Environmental Risk and Disclosure

Potential buyers may be wary of investing in land with active or historical drilling. Soil or water contamination, even if speculative, can scare off investors or result in lower appraisals. Sellers are often required to disclose production history, which might raise red flags for cautious buyers.

3. Tax and Estate Planning Hurdles

Royalties may carry tax implications, especially when passed through inheritance. Many landowners find themselves juggling tax liabilities, estate valuations, and distribution complexities—often without the tools or experience to do so efficiently. These challenges can affect both short-term property appeal and long-term family planning.

Why Royalty Income Isn’t Always Predictable

Unlike rental income, which can be relatively steady, oil and gas royalties are highly volatile. In Divide County, monthly checks may vary drastically based on:

• Commodity prices (which have been known to swing from $30/barrel to over $100/barrel)

• Well performance decline over time

• Shut-ins or production delays

• Operator decisions (like temporary suspensions or cost-cutting)

As a result, relying on royalties as a predictable revenue stream can be risky, especially for retirees or those managing property from out of state.

Some landowners report receiving healthy royalty checks for years, only to see them dry up without notice. In these cases, the property’s “perceived” value drops along with the income.

The Market for Mineral Rights: A Silent but Active One

There’s a growing secondary market for mineral rights in Divide County. Investors and mineral buying firms seek out landowners willing to sell their rights, often quietly, discreetly, and for substantial sums.

These offers are sometimes unsolicited, arriving in the mail or through local contacts. Others are more targeted, especially when production history or royalty data becomes public. In many cases, these firms are prepared to pay a lump sum for producing (or even non-producing) rights.

Why Some Mineral Landowners Quietly Choose to Sell

• Immediate Liquidity: Rather than gamble on royalty income, sellers can unlock the full value of their asset in cash today.

• Tax Strategy: With the help of an advisor, selling rights can sometimes lead to favorable capital gains treatment compared to income tax on royalties.

• Simplicity: Selling removes the administrative burden of tracking payments, reading production reports, or chasing down late checks.

• Estate Planning: Selling now can simplify estate distribution, avoiding disputes or complications for heirs unfamiliar with mineral management.

Of course, every property and every owner are different. But for those not interested in managing mineral rights for decades—or passing them down to uncertain heirs—selling can offer a clean, profitable exit.

What to Know Before Selling

Selling your mineral rights—especially in an active oil and gas region like Divide County—is not a decision to take lightly. While the potential payout can be attractive, navigating the process without proper preparation can result in undervaluing your assets or encountering legal and financial headaches later on.

Here’s what every mineral owner should carefully consider before signing on the dotted line:

1. Know What You Own

Before entertaining offers, it’s critical to fully understand the scope of your mineral ownership. Mineral rights can be fractional, shared among heirs, or partially severed from surface rights. If you’re unsure about your ownership percentage—or whether you even own the minerals beneath your property—consult a title attorney or landman to confirm.

You should also clarify:

• Whether you own executive rights (the right to negotiate leases)

• If your rights are currently under lease to an oil company

• The legal description of your mineral acreage

• Whether you own royalty interest, working interest, or overriding royalty interest

Misunderstanding your interest could lead to leaving money on the table—or worse, entering a sale agreement you’re not entitled to make.

2. Get a Professional Valuation

Not all mineral rights are created equal. Location, production history, proximity to active wells, lease terms, and commodity price trends all influence the value of your holdings. Don’t rely on a buyer to tell you what your rights are worth—they’re incentivized to purchase for the lowest possible price.

Instead, work with a reputable mineral appraiser, geologist, or mineral rights consultant who can provide a detailed evaluation based on:

• Current and historical well production data

• Your royalty statements

• Lease agreements

• Regional drilling activity and potential for new wells

Even if the evaluation costs money up front, it can help you negotiate more confidently and avoid falling for an undervalued offer.

3. Don’t Jump at the First Offer

Divide County landowners often receive unsolicited offers—some in the mail, others by phone. These initial offers are rarely the highest you could receive. Many buyers use a volume strategy, offering low prices to thousands of owners and hoping a few will accept without question.

Instead, consider:

• Shopping your rights to multiple buyers (creating a competitive environment)

• Requesting offer transparency, such as the buyer’s valuation method

• Negotiating not just price, but terms like payment timing, legal fees, and warranty clauses

It’s okay to take your time. A serious buyer will respect that.

4. Understand the Tax Implications

Selling mineral rights often results in a lump-sum payout, which may have tax consequences. Depending on how long you’ve owned the rights and how the sale is structured, you may owe:

• Capital gains taxes (usually lower if you’ve held the rights for over a year)

• Ordinary income taxes, if the IRS classifies the payout differently

• State income tax, if applicable (though North Dakota’s tax rate is generally favorable)

Before selling, consult a qualified CPA or tax advisor familiar with mineral rights. With proper planning, you may be able to minimize your tax liability, possibly using a 1031 exchange or other tax-deferred strategies if applicable.

5. Be Clear on What You’re Selling

Mineral owners can choose to sell:

• All mineral rights (permanently transferring ownership)

• A percentage of their mineral interest

• Only the royalty interest from currently producing wells

• Non-producing acres while retaining future rights

In some cases, you can even negotiate a term-limited sale (e.g., five years), after which rights revert to you. This can be an appealing middle ground for those not ready to part with everything forever.

Work with an attorney to spell out the exact terms of the sale—ambiguity here can lead to costly disputes or irreversible loss of future value.

6. Work with Reputable Buyers

Not all mineral buyers are created equal. In an area like Divide County, where interest in minerals is high, many buyers are legitimate, but some may not operate in your best interest.

To protect yourself:

• Ask for references or look up online reviews

• Ensure the buyer provides a clear purchase agreement and not just a letter of intent

• Be wary of high-pressure tactics or overly complicated legal jargon

• Make sure any title issues or closing costs are clearly defined—reputable buyers often cover these costs

It’s a good idea to involve a mineral attorney during negotiations, especially if your estate is complex or includes co-owners.

7. Timing Can Be Everything

The value of mineral rights is closely tied to commodity prices and industry activity. If oil prices are up and production in Divide County is increasing, your rights could command a premium.

However, waiting for the “perfect” moment can be risky. Markets shift quickly, and production can decline faster than expected. Many sellers choose to act when value is high and demand is strong, maximizing their payout before market corrections or well declines diminish their asset’s appeal.

In some cases, locking in a favorable offer today may be more advantageous than gambling on years of fluctuating royalty checks and uncertain future development.

8. Don’t Forget Estate Planning

If you’re holding on to mineral rights as part of a larger inheritance or estate plan, consider the implications for your heirs. Mineral interests can be difficult to divide, manage, or liquidate—especially for beneficiaries who live out of state or lack experience in the energy sector.

Selling now can:

• Simplify your estate

• Ensure you control how the asset is distributed

• Free your heirs from complex legal or tax issues

• Convert hard-to-manage interests into cash or other easily transferable assets

This is especially important for older landowners looking to reduce the administrative burden on their families.

9. Protect Yourself with a Strong Contract

Any mineral rights sale should be backed by a thorough, clearly written contract. This document should outline:

• Exactly what rights are being sold (mineral, royalty, override, etc.)

• The legal description of the property

• Purchase price and payment schedule

• Any warranties or guarantees made by either party

• Who pays title fees, closing costs, and legal expenses

Avoid generic or overly vague contracts. A mineral attorney can help you avoid loopholes that could cost you down the road.

10. Keep an Eye on the Bigger Picture

Yes, holding mineral rights can be a source of passive income. But it also comes with complexity, risk, and unpredictability—particularly in a market as nuanced as Divide County. Selling doesn’t mean “giving up,” it means strategically unlocking value from a volatile asset.

Think about your goals:

• Are you hoping for stable income, or is a lump sum better for your plans?

• Would simplifying your estate give you peace of mind?

• Are you prepared to manage the ups and downs of production?

• Do you want to pass on mineral rights—or something more liquid—to your heirs?

By weighing the emotional attachment against the financial realities, many landowners ultimately decide that selling—carefully, strategically, and for fair value—offers the clarity and control they need.

Conclusion: A Quiet Opportunity Beneath Your Feet

In Divide County, mineral rights are more than just legal lines on a deed—they’re a powerful, if complex, part of the region’s economy and your property’s potential.

For some, holding on to royalty income is the right move, especially if wells are producing steadily and the payments are worth the variability. But for many others, especially those facing financial goals, retirement planning, or estate simplification, selling mineral rights offers a quiet but compelling opportunity.

At the very least, understanding how oil and gas royalties affect your property’s value puts you in control, able to make decisions not just based on speculation, but strategy.