Approached to sell royalties

New to this site. Has Anyone sold their royalties? If so how much did you receive. We have been approached by a company wanting to purchase some of our interest . We own property in western guernsey and western noble counties. We are strongly considering selling a portion. Any input would be appreciated.

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Permalink Reply by Shocked at SHELL on July 8, 2012 at 12:38am

40,000 an acre in royalty's that is sorry for not spelling that out. But it looks like you know it all so im not wasting another key stroke on you

Permalink Reply by Linda A on July 8, 2012 at 8:20am

if that amount is anywhere near to the truth, people should be setting up family trusts to avoid estate taxes and probate.  Contact a lawyer to discuss.

However, sacrificing today to hold on for heirs is noble, you should make the best decision today to improve the quality of your life and health.

Unearned money (inheritances) are not appreciated therefore children will not handle it the same as you would.  When we earn our OWN money, we learn how to handle it to live our lives accordingly.

If you set up a trust, you can set up automatic drug/alcohol testing each month before they receive their 'monthly' share and if they fail such test, THAT month's allowance is donated to a drug or alcohol treatment facility (your choice), NOT left to accumulate for the following months.

There are a lot of things you can to to guarantee your 'sacrifice' is not wasted on future generations.

Just look at children of the wealthy, and movie stars.  FREE money/stuff is not appreciated as it is unearned.

Hope I planted a seed of knowledge to a few here who worked hard all their lives and believe they should 'save' it for the kids...

Permalink Reply by MKMC on July 6, 2012 at 10:21am

The property falls in the Utica play in Ohio where they are getting both Oil and Gas.        I think 1 million dollars per acre over the lifetime of the well/wells is a low number.   Do you really feel that the company that is offering the money to buy their royalties just wants to give money away with no return on the investment?

Permalink Reply by hopeforoil on July 6, 2012 at 10:32am
Of course they're in business to make money. Let's do some simple math and make some assumptions. If a well produces 1 million barrels of oil over its lifetime ( highly unlikely the "buell" well is estimated to make 575,000) at let's say $100 oil (oil is trading around $87 right now) the well would make $100 mil over its lifetime. Let's assume a 640 acre unit that would be $156,250 per acre over life of well. Now let's assume a royalty interest of 20% that would be $31,250 per acre over the life of well for the landowner. Now let's assume they drill 6 more wells of 1 million barrels (just not realistic) that would be $187,500 per acre. Now that's assuming quite a bit (almost doubling the production of the best Utica well to date) and were still nowhere near your number.
Permalink Reply by Tony Rox on July 6, 2012 at 12:32pm

My 2 cents against the million dollar estimate: Hope - YOU have done some homework my friend.

 

Permalink Reply by MKMC on July 6, 2012 at 11:08am

The scale of the spending in the state — $4 billion in leasing so far, and more than $3 billion in the production and transport sectors — has generated the most significant surge in Ohio’s oil and gas development in decades, business executives and state energy officials say. In February, Chesapeake Energy of Oklahoma City reported that two of its new wells upriver from here produced 700 barrels of oil and three million cubic feet of natural gas a day. In April, Anadarko Petroleum of Houston reported that one of its new wells in Noble County produced almost 500 barrels of oil and 600,000 cubic feet of gas a day.    Unless I am mistaken if we do simple math on this 500 barrels a day X 1825 days (5 years) = 912,500 barrels of just oil not counting the money for the Gas.     The oil alone is almost 1 million barrels in a five year off of one well

Permalink Reply by Erik V. on July 6, 2012 at 11:28am

MKMC,  The trouble with your math is that there is an 80% or so drop-off in production from the Utica Shale wells in the first year.  The Anadarko well you noted had only been produced 20 days when the report was generated.  This is a mistake many are making when calculating projected royalities.   If you take the longer term production numbers (at least 200 days) you start to see what these wells may produce a day in the long term.  If you look at the production numbers reported to the state in March and average all the production of oil with the producing days you get around 60+ barrels a day.  A good average for a landowner but not good enough to pay for a well that costs 6 to 8 million to drill.  Though like you said, the gas production also has to be included and from the reports this varied quite a bit.   Longevity is the key and nobody knows what that is right now.  Only time will tell if the Utica play in Ohio is a boom or bust.  Hope this helps. 

Permalink Reply by Tony Rox on July 6, 2012 at 12:42pm

Erik V.,

Thank you for bringing everyones feet back to earth.
"Only time will tell....." so true, its all speculative.
A well 5miles away from a hot one can be a bust. Proven.

Also, as well intended (full pun, it never gets old) as some people are - I suggest that EVERY SITUATION is different.

Only hope that the good people seeking feedback by query, take in all feedback and formulate their own opinion based on their situation.

For example, I am assisting an individual soon by offering them a substantial amount of money for his production. They are an elderly couple and want to turn their OnG assets into cash. Before proposed capital gains taxes.
But, primarily because of ESTATE taxes. The appraisal on producing wells could be astronomical and inaccurate. Also, the liquidation may be put into trust.

See, a couple in their 40's may not require that.

 

Also, this was by way of another payout recommending me to these family members. And, they know as much about OnG as ANYONE on this forum. Have mutiple producting wells on several parcels in several counties for several years.

And, it was THEIR idea. No hard sell. Some things are just logical.

Again, weigh YOUR options and needs.

Hopefully, I was of some assistance.

Permalink Reply by MKMC on July 6, 2012 at 1:36pm

Tony Rox and Erik V.

They have multiple Horizontal wells not Vertical on all their properties in several counties?   There is a big difference between Horizontal and Vertical when it comes to production.

Where did the information come from on the 80 percent drop off after the first year on a Horizontal well the drop off usually is about the 7th or 8th year and all that needs to be done after that is the well needs to be re-fractured to get the pressure back up.    Did both of you see what the companies are paying to drill wells in the state Billions with a (B) and you are trying to make people believe that they don't know they are going to get the money back plus a whole lot more I do not think the stockholders of these companies are gambling with Billions of dollars.     I am trying to explain to the Land Owners on this forum to be careful with their royalty interest if they want to sell then sell but I would not until I see my first Horizontal well in their area almost stop  producing after a year.   The average life expectancy for a Horizontal well is 25 to 60 years that Anadarko well as far as I know or anyone else for that matter may produce 500 barrels and 600,000 cubic feet of gas a day for the next 100 years I don't know for sure no one does but I am confident that the geologist and the seismic people who work for the oil and gas companies do know and that is what I base my information on.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 6, 2012 at 2:30pm

"Where did the information come from on the 80 percent drop off after the first year on a Horizontal well the drop off usually is about the 7th or 8th year and all that needs to be done after that is the well needs to be re-fractured to get the pressure back up."

Whomever told you that was absolutely yanking your chain.

" Did both of you see what the companies are paying to drill wells in the state Billions with a (B) and you are trying to make people believe that they don't know they are going to get the money back plus a whole lot more I do not think the stockholders of these companies are gambling with Billions of dollars."

Most shale plays in the US right now are uneconomical outside of very narrow hot spots.  The Barnett is unprofitable below $7mcf gas.  The Marcellus is unprofitable below ~$6.50mcf.  In case you hadn't noticed CHK has lost over 35% of it's value in the last year because stockholders are bailing on their business model.  NGL's--the alleged savior of America--have plunged in price because there is a supply glut.  Out of everyone in these plays landowners get the best deal, pound for pound.  They get paid up front for their lease, they get royalties and they have zero financial risk if a well flatlines after a year.  Companies invested billions in the Haynesville to lease land in 65 townships.  The core area that shows profit is only five townships.  Of the 1,000,000+ acres leased only 10% show profit potential.  At $10mcf gas and NGL's trailing WTI Crude at 45-50% these shale plays are profitable on a larger scale.  Without that condition it's hit and miss.  Go check out Range's presentation on their Marcellus holdings.  Look at the ROI and the price conditions that need to exist in order for them to make any money.  At strip price over 10 years their IRR is 71%.  That means they lose 29% at those prices, and the strip holds a much higher average than is likely to exist.

Permalink Reply by Erik V. on July 6, 2012 at 4:31pm

MKMC,,,,Here is a link to a chart showing the decline of a shale well over time (http://geology.com/royalty/production-decline.shtml).  Please note that NG production falls from 5 million cf a day to just a little more than 1 million cf in the first year.  This represents a nearly 80% drop.  The chart is for a typical shale well and it appears from the initial production numbers we have seen and the reported March numbers that this is about the same for a Utica well.  We have seen less of a decline in the Marcellus wells than Utica, but there really isn't enough data to conclude that or enough of a time interval.  If you don't believe the chart on the geology.com website just do the math yourself by looking at the ODNR website and take the total production and divide it by the number of production days.  These numbers can be skewed by the drilling companies to a certain extent, but over time they will be more accurate.  As far as the $1,000,000 dollar per acre royalty??  Wow, that would be great, but not from most of these wells even if you owned all the acreage in a drilling unit.  I do agree with you on one thing and that is I wouldn't part with my royalties at all. 

Permalink Reply by MKMC on July 6, 2012 at 3:09pm

Marcus

That would be the reason for the Shut in clause in their leases when the money is down the company will "SHUT-IN" the well until the price goes back up.

I could argue numbers all day with all of you but in the end we will agree to disagree.

All I am saying is that if they were my royalties I would not sign them away to anyone not even a part of them.

Have a nice day

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