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!
Every ones situation is different for sure. If you have no other reason except to accumulate a possibly huge bank account,
For regardless of any investments you could might use the extra money for, Think about this. A new investment is never a sure thing. ........ no more then a drilling company is positive that they will hit a major gusher!
In other words, A CRAP SHOOT no matter which way you go!
For myself, I am hardly well off dollar wise! But I do have a huge wealth of memories that can never be replaced by any amount of dollar bills. Any royalty I might receive is helpful to be sure. But if for some reason the royalty is halted , I will survive as I have done for 83 years.
Back before the depression several of my fathers coworkers had waffled back and trying to decide if they should invest in the rapidly rising stock market quotes. More then one of his coworkers borrowed every penny they could, hoping to make a killing as it were.
Guess what happened? These certain coworkers lost every thing they owned plus every penny they could beg, borrow, or steal. Several even lost their jobs because they no longer even had a vehicle to drive to work.
Is it worth it to make such a drastic decision? Just my choice not to sell what I own! You might have a different idea!
I just wanted to clarify something that may have been misleading about my comment regarding my CPA. I inquired about how much taxes would be due if I chose to sell a portion of my mineral rights, he never ADVISED me to sell! I apologize for the confusing nature of some of my replies...I’m usually responding to phone calls, emails&texts simultaneously throughout the day on my iPhone. Just to confirm- I have never been advised to sell my minerals from my attorney , CPA or anyone for that matter this is all a venture directed by myself , while retaining an attorney and CPA to help answer questions, for Guidance and protection.
If you wish to go down this road, there is some math you could do to develop a value for your mineral rights. There are a lot of flaws with this valuation process since you are estimating production, price of gas, and decline curve. You are also guessing when wells will be drilled and production starts over a period of 20 years.
Of course, in the end, the value is whatever a willing seller and willing buyer agree to.
We have been getting offers on a small shared portion of my spouses inheritance from her Grandmother in Greene Co area of Penn. We haven't had any interest in signing any lease or selling her portion even though we have had a few offers. We talked with our Attorney here in Montana and of course he said we had to get someone more experienced than himself since there is a lot of loop holes that you can get trapped in. He mentioned if there is a Unit being put together, those that aren't signed on would be directed by the State to sign onto a contract with the Company drilling. He thought this may be the best way to get a better portion of sign on bonus as well as royalty share.
Anyone willing to comment on this I would sure welcome the information. Thanks.
You need a PA attorney (I'm not selling anything btw). We do not have state mandated pooling and unitization. The state will not mandate or suggest that you sign anything related to an oil and gas lease. PA is different in some regards to all other oil and gas producing states - we don't have pooling/unitization laws and we separate oil and gas from minerals - you can lease your oil and gas rights while your minerals remain intact.
Thank you for the information, I think she only has about 2.5 acres for her share. Trying to see what is the biggest things we want to watch for when signing in a lease, we won't sell it. Already the offers have gone from 500.00/acre to 6200.00. If you know any good sources of information (sites or articles) that would be helpful too. Thanks again.
Since this is a small amount, you probably don't have all of the land use concerns that many others have, so I will stick to the financial aspects of the lease: 1) Royalty - deductions can really cut into this and are confounding and frustrating to royalty owners. Personally, I would rather have a 12.5% royalty with no deductions than a 16% royalty with deductions. These are post-production costs only, but can add up and are difficult/confusing for royalty owners. You can ask for the right to audit, but the cost of an audit and the cost of dispute is bigger than someone with 2.5 acres wants to take on. 2) Bonus - Over time, often royalty is worth more than bonus, but bonus is upfront and takes a lot of risk out of the equation. The choice between royalty or bonus being higher is sometimes offered (you can get a higher bonus for a lower royalty). Some other things to consider on bonus is the number of years (normally they are offering 5-year or 10-year upfront bonuses) and what does it take to hold you by production (HBP) which kicks your lease into a secondary term. These two items make up the bulk of financial considerations.
Since you are very small, I would suggest you contact larger landowners in the immediate area and see what they are being offered.
Thank you Dan for the advise, really appreciate the insight. Don
I disagree with those people who say don't sell even if your back is against the wall. For a lot of people the amount of money their mineral rights may be worth even if they are stable financially can far exceed their other assets. To keep all of that and not sell a portion is like putting all of your money in one stock that seems to be totally safe. A wise person will diversify into a number of assets to protect themselves for an unforeseen disaster and there are plenty of potential disasters waiting for people who own mineral rights.
In my case, a large portion of my land is wedged in between the interstate & a new well that has been drilled. They don't drill under the interstate & there's not room enough for another well to go in there now. I'm lucky I sold 1/2 of my mineral rights before the well went in because now the minerals under my acreage are practically worthless. There can be any number of reasons why a piece of land never gets drilled under or even if it ever is it may be years from now. I would like to see information showing what percentage of the land under lease has actually been drilled since fracking started around here. I bet it is truly small and it would take 50 years or more for all of it to be drilled. Those people that count on definitely being drilled on and calculating how much money they are going to get are being very very optimistic. Also, you may be ripped of by the drilling company and not receive what you think you should because of unforeseen deductions. I'm sure I haven't even scratched the surface of all the reasons why what you think is a sure path to riches may never happen.
Now, I don't have to worry about outliving my retirement savings & my only regret is that I didn't sell all of it when I had the chance.
I agree with you Deutchen, to not even consider selling (for the right price) is, to me, foolish. If you consider it and then come to the conclusion that it's not for you, then that is one thing. Tossing aside a GOOD offer without even thinking about it is not the best move, in my opinion. Selling definitely isn't right for everyone... obviously, when these companies make offers to buy your minerals, they are going to offer you less than they think you will make if there is production from your property... that's how their business works. If you don't sell, production will be spread over decades, most likely (though it is heavily weighted towards the first few years), and you are gambling on your property definitely being drilled (as you have witnessed yourself). For many people who don't need money right now, it's a good move to hold. But I think selling, for the right price, is definitely worth considering, if you need the money or if for some reason you have doubts about your property ever being drilled. I personally like the idea of what you did, selling a portion and retaining a portion. There are so many things that influence this decision, you can't really blame anyone for going one way or another.
I don't understand your situation, but I have a few questions that would satisfy my curiosity and increase my knowledge;
Your statement, "In my case, a large portion of my land is wedged in between the interstate & a new well that has been drilled. They don't drill under the interstate & there's not room enough for another well to go in there now."
Is there a reason a well can't be drilled under the Interstate? In PA, the State claimed ownership of right-aways for streambeds and collects royalty for the rights when a well crosses that vertical plane. Is there a Federal prohibition against drilling under an Interstate?
Why can't another well be drilled there, say parallel to the Interstate, yet including your land in a new or expanded unit?
I agree that selling a portion of your rights can be a wise move, as everyone's situation is different, and they are your rights to develop to your benefit.
I'm not sure why they don't cross the interstate but I know of several wells that go right up to the edge of the interstate right of way & stop.
My brother recently tried to sell part of his mineral rights from the same farm 3 years after I did & nobody wanted it. They sited the fact that the land was boxed in between the well & the interstate. They wouldn't be able to put a well parallel to the interstate because around here wells are always drilled northwest or southeast because of something about the way the grain of the shale is deposited.