Hello all, trying to confirm a ball park formula for mineral valuation. Im attempting to sell 50% of leased MR's in what some call "one of the sweet spots" in Harrison county Ohio.
: 2 X current bonus amount on 12.5% royalty lease. Example : bonus amount $3K x 2= 6K to sell
is this a good starting point when considering mineral value regarding selling? I know there are many other considerations that will effect value , just looking for opinions from more experienced members that might help fellow MR owners not leave to much on the table In terms of selling. Thanks for your input if your willing to help out!
I can only speak from our experience, but we thought 2.5 times the bonus/acre was pretty low. As it turns out, we will realize more than that in the first two years of production royalties....so the remaining 10-15 years(?) is all gravy, albeit not immediately available.
Selling is a very painful process to consider, what with Sellers remorse and all. I can tell you that you will have lots of offers, and you should never consider the buyers first offer.Always counter....high! The other factor in the process....as the time to drill draws closer, the offers will improve. And prospective buyers seem to know when that time is near....don't know how they know it, but they do. Once the decision to develop acreage has been made....you can get a feel for what is expected by the size of the offer.
Your situation is unique to you, and no one knows what your needs may be, so you will find many on this board that would never sell their rights. It is an individual choice, and I hope it works out well for you.
The decision to sell only an 'undivided' percentage of your rights can be the best of both worlds....immediate cash now, but you stay in the royalty game. Good Luck to you
I like your 1st sentence, thx 4 ur comment. The more painful the selling process is the more likely i will hold on to my minerals. With price offers all over the place, the unknown about a 50/50 partner, this "partitioning" talk and yes sellers remorse, are all on my mind. Other members & I are waiting for a response from a question one asked : "has anyone actually went all the way through a partitioning case?" Maybe I will have some insight into this after my next meeting w/ my O&G attorney. I'm using a local (eastern Oh.) experienced professional instead of the big firm I have used out of Cbus in the past...they represent big oil.
I am taking my time, definitely not rushing and considering all options...not expecting to make a commitment (if ever) until the end 2018! I'm betting on 2018 being a good yr in my area. I agree w/ u about prospective buyers having insider info and absolutely not taking any 1st offers.
Selling 50% of leased MR's, while keeping 50%, is great way to keep some skin in the game while hedging against your investment. I've seen many clients starting to take the same approach because this allows them to take a lump sum up front while also receiving royalty payments, if and when a well is either drilled on the lands leased, or the lease is pooled into a nearby unit and "producing in paying quantities."
As for your ball park formula for mineral valuation. Like you said, there are many other considerations that will effect value. Obtaining a fair market value is possible through one of the many mineral purchasing sites. However, these will most likely provide you with a low ball estimate. From what I've recently seen in Jefferson County, which is also a "hot spot," minerals are going as high as 10k per acre. In this example, the minerals are unleased.
As for your individual situation, without knowing the terms and stipulations of the current lease in effect, or whether or not your lease is held by production, or if you have additional acreage on such lease, it is hard to give you an idea of what your minerals are valued at. Some leases have shorter or longer primary terms, with hidden stipulations such as shut-in payments, rental payments, and vertical and horizontal pugh clauses. All of this can affect your ability to negotiate the price you receive per net acre.
I'd more than happy to talk with you about your property and current lease terms.
Full disclosure: I am not an attorney, however I have extensive knowledge in the oil and gas business. Depending on the amount of acres you are looking to sell, I'd suggest talking with an oil and gas attorney. Hope this helps.
Thanks Dan , I'm juggling enough "agents" right now ...may reach out to you later to see what your approach is in comparison.
I'm not an agent - not trying to sell you anything. I work for Penn State. I have gone through this exercise several times helping landowner groups and others to decide on leasing and selling choices, etc. I won't promise to do the math for you, but I can help you determine the formula
Im interested in speaking toyou, if you would like to take this “offline” so to speak, message me and we can communicate via email or phone.
email me at email@example.com
If I may, lets look at this just a little differently.
I cannot attach even a ball park estimate of the value of your minerals over the life of your lease. In fact, no one really can because the life of your lease production may exceed 20 years.
In light of that, what do you think a potential buyer is going to offer or pay you for your minerals ?
The answer is, as little as possible, with a low ceiling of a maximum offer due to the unpredictable nature of the market.
In other words, even at the best price possible you will in fact receive a very low percentage of what the actual value of the lease will pay out. It would be idiotic for the buyers to do anything else.
So instead of wondering what a fair offer is just understand that at whatever price you are paid it will only be a fraction of what patience will pay you.
Consider also two more points please.
The buyers will have you over a barrel (pun intended) in that you will be relying almost solely on information that may or may not be accurate and that unreliable information will likely be from an anonymous internet message thread like this one.
On the other hand, you can bet absolutely that the buyer has every crumb of information he can get at, at a level that you will not be able to achieve. They hold the aces while you are holding deuces. When you are a buyer you are risking large amounts of money from wealthy clients whose trust has been earned. There is no grey area there.
Lastly, be very skeptical of those who have skin in the game at the same time offering you advice. Buyers will tell you anything to get you to sell, all their advice is skewed 100% their way. Same goes for those whose business is advising folks who are selling, they don't get paid until you decide to sell. For example, selling 50% of your minerals and keeping 50% doesn't change in any way the scenario at the top of my comment, you are selling half of your best interest at a loss to you in order to allow the buyer to make money off of what is yours in the first place. I have also seen these "advisers" tell folks that they will make more money by selling part and investing that part, which is just plain dishonest.
I have no skin in this, I am a guy who has seen first hand what these minerals are worth. We only have 12.5 acres in production, our last check was $3000, nearing the two year mark of production. You don't need a calculator or a mathematics degree to figure out that it wont take long before your royalties blow by whatever sum a buyer pays you for your minerals.
They are your minerals and there are no hard feelings either way in what you decide to do with them, but I know absolutely 100% that in 99.999% of scenarios it is a huge loss to you to sell your minerals.
Hope this helps,
i appreciate your viewpoint . I do believe and agree w/ your post, thank you.
I was offered 10.5k/per acre from bounty years ago and passed. At that time , offers were going up...almost monthly. my price to sell then was 15k, in which I'm glad 2014 came along and changed everything. Holding out gained me an additional bonus payment, while retaining 100% of my rights.
I have never been HBP or even in a drilling unit yet, only leased on 5+ 5 yr term, in 6th yr now. I will never sell if offers are in the 4 digit per acre range!!! As I continue to watch very positive production #'s from dry gas wells in my area (3/4mi from prop border) and as infustructure improves, my price to sell will only go up or disappear.
I'm not forgetting to add this to my equation: bonus & royalties are taxes as ordinary income. I have been hammered by Uncle Sam in the years that a bonus was received ...this can/will make a big difference. With my ordinary income combined with a bonus check, I had to back away from my contracting work (income capped) or face paying over 50% in taxes....I work way to hard to consider even less compensation for my work. My cpa advised me on a sale of minerals last yr, i would have paid around 15.5% in taxes on the sale only, income tax would have been a different #.
i was hopeful that members would post offers or better yet closing amounts received on sales to this board, but I understand the hesitation in terms of privacy. I will however post my ongoing interactions and end result to help others.
Right now I will advise anyone considering selling and/or being approached to ask for the "agents" contract 1ST!!!!!! followed by setting an appt w/ your attorney for review. I have gone down this road and many times you have lost leverage by sending your info to them 1st. meaning you prob will not even recieve their contract and to me that is more important then them throwing some offer my direction. Mineral owners should try to stay in control of these negotiations.
I don't have a PHD framed and hanging on the wall, but I can tell you to do yourself a huge favor by not sighing ANYTHING w/ out a Good O&G attorneys help!
Remember these are ongoing negotiations...Don't give them your bonus payment amount either, if you want to be nice, give them only a bonus range, or fight fire with fire and lie! I have been laughing at these guys asking for me to lay my cards on the table 1st...DONT DO IT. You will lose your leverage. Oh, and in case I forgot .... NEVER sign a document before having a competent attoney scrutinize their mostly one sided contract.
One more point, since I'm only leased (no immediate unit planned). I'm definitely not banking 100% that I will be receiving future royalties!!! Plug in lots of scenarios here: could be drilling & HBP, only small fraction of acreage entered in unit, dry well/ operator errors or fatality , lawsuits, LG portions of royalties stole by PPC's crappola....etc
please forgive some of my past & current posts, i finally read them and observed all the typo's and iPhone auto mis-corrections made.
David, yes these are our minerals and these guys don't get paid unless WE LET THEM get paid on a portion of valuable minerals.
Thanks again for your comment.
I also use a CPA for our taxes, he has not only never advised us to sell our minerals but in fact has securely advised us to never sell them. I realize different folks have different situations.
As for your particular situation it would seem to me very obvious that you will in fact be unitized and drilled eventually.
The most telling thing that I have learned on this entire matter is how quickly things can change. What seems an adverse or hopeless situation one day will be the total opposite the next.
Thank you for the kind response,
Putting my two cents worth in this discussion, I'd say, Do not sell even if your back is against the wall! If your land has been in your family for a very long time, then you must know it was passed down to you with every little improvement or sacrifice that was made for your ancestors just to hang on! Maybe at times it seemed to be just a very large stone hanging on their necks. But if they could plant a few seeds, they never hungry. If they had a few trees, they always had fuel.
Some folks close to me decided that nothing else mattered but to grab every penny from the other person's wasteful habit. Today they have only a huge pile of trash, a half acre of property and next to no one who really cares about them. They are living alone and no one close by to help in an emergency.
That extra penny certainly is not worth it considering what they threw away!
William, I will chalk that up as :you are recommending to not sell , as for the rest of your comment ...does not apply to my situation . all the possessions that i currently have or have ever owned ,I’ve had to grind it out to achieve or acquire, Thank you for your concern and advice