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Permalink Reply by 0i7okn54zwbdo on February 6, 2013 at 7:16am

If someone wants to buy your royalties it means they're making a speculation about your acreage, its location and when to expect drilling.  For that speculation they get a discount on the overall price and you get a guaranteed payment.  It's a way to shift your risk.  I personally wouldn't sell 100% of anything I own, but selling a portion is not out of the question, especially when you consider the economics of some of these wells.  Gulfport has a few mega wells that are producing great looking numbers.  The dirty secret is that they're still not making any real money on these wells because the costs are outrageous.  The landowners can say they don't care if the O&G companies make any money as long as they get theirs, but nobody is going to drill a break even play.  So you have a lot to think about.

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Permalink Reply by Frank De Fede on February 6, 2013 at 8:21am

Marcus, thanks for the input.  I figure if someone is being offered $3,500 to $5,000 an acre for the royalties then the companies offering must be expecting to make a lot more.  But, I wonder when all of that will happen?  Perhaps if could be years and even decades.  Perhaps it is best to get the money now.

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Permalink Reply by 0i7okn54zwbdo on February 6, 2013 at 8:36am

If you have a 12.5% royalty and it's worth $10,000/acre over the life of a well then what's it actually worth today?  That's what these companies are trying to figure out.  They need enough of a margin to cover them if they buy 50 acres that never get developed.  So they lower the price in order to make their business model work.  Landowners who want maximize value needn't be part of this sort of transaction.  For them it'll be all about pure, dumb luck.  For people wanting to sell it's all about what works best for them and their families.  Don't ever let anyone talk you in or out of making a choice that's good for your family.

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