Replies to This Discussion

Permalink Reply by David Allen Lilly on July 18, 2018 at 1:00am

What was the offer amount ?

A couple of weeks ago I received two letters offering $14,000 an acre for each of our two parcels in Millwood township.

I didn't even consider selling but was surprised at the offer amount although I believe there is no way they would actually pay that amount. It is likely that they are trying to fish for landowners with big numbers that will almost surely be reduced.

Another reason why I don't care for people who wish to buy other peoples money for dimes on the dollar.

Anyhow, the amount offered might be a clue as to if something is happening in your area.

I looked at the ODNR map and noticed that as soon as you leave Londonderry going east on 22 there is a huge hole with no units.

Patience is a virtue, I often said that I would have very much have rather not gone into production on the portion of our property in the McClain unit 2 years ago when prices were depressed. I still feel like long term pricing will increase as the economy continues to pick up steam.

When the trade issues are settles, and they will be, I am sure there will be a significant uptick the global economies.

I hope things are well in North Carolina, a wonderful and beautiful state.

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Permalink Reply by nc man on July 18, 2018 at 2:54am

Hey David!

I appreciate your reply.

I did not even contact the Purple Land men back.

There was no mention of the amount they were willing to pay and I didn't even bother calling them.

But maybe just the fact they contacted me says something.??

Yes, there has been NO activity in the area where my minerals are, since signing the lease in Oct. '12.

Yes, patience is a virtue BUT--------:D

If nothing goes down in the next two years, hopefully, I will be leased, again, and that's not bad while I wait for the drilling to start (if ever)!

All is well in beautiful NC and my wife and I are doing great.

Thanks for asking and hope all is well with you and yours.

If you hear of any drilling "rumors" in my area, please drop me a line.

Thanks!

nc man

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Permalink Reply by jason irvine on July 19, 2018 at 4:19pm

I think the huge hole ur referring to is similiar to were im at. My property is a hunting camp on 8 mile ridge out of reader wv. There is drilling all around me. I think that they are plucking the low hanging fruit. It looks like the developemnet is concentrated around the good roads...i70..the river...rt22..rt50..i79. The reason we purchused this land was to hunt. It is remote. The roads are small and bad. Terrible bridges lack of water etc.

If they are drilling around you they will be coming. Someone will also lease your property again. If your in a good area they will be coming. Our 2nd term lease expired in January and we signed again in january. I figured if it wasnt a good area no one woulf want it. Good luck

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Permalink Reply by Dave in Ohio on July 30, 2018 at 5:21am

Thanks for the info, David!  If you don't mind me asking, who made the offer?  I have dealt with Ascent for years, and they have only offered to lease, never purchase.  I lean towards holding onto my minerals, but a good enough bid might make me reconsider.

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Permalink Reply by David Allen Lilly on July 30, 2018 at 5:29am

There is no such thing as "a good enough bid". You are getting pennies on the dollar on the low end and maybe 50 cents on the dollar in a great area with a great lease and a unit that your lease is in about to go into production.

Gateway Royalty made the offers.

I wonder what they would really pay, if it is what they offered ?

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Permalink Reply by Dave in Ohio on July 30, 2018 at 5:40am

Thanks, David!  I may have to look into that company.  If anything, their opening offer ought to be lower than where the price would end up.

It sounds like you should hang onto your minerals!  It is not easy to figure out what to do, mostly because nobody can predict the future.  If the market is all roses, you don't have any emergencies, and you're young enough to enjoy the long-term income, royalties are probably the best way to go!

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Permalink Reply by Dott on July 30, 2018 at 4:01pm

Dave in Ohio,

Did you infer that you are leased with Ascent? If you are can you share how they are to work with? Are they fair with the deductions ( I know, is this where I start laughing?) and do they respond when you have questions? 

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Permalink Reply by Dave in Ohio on July 31, 2018 at 3:38am

I've had a mixed bag of dealings with Ascent, so I think it really depends on the landman you talk to.

As far as questions/concerns go, a couple of years ago they were making errors all the time, and it would take a long uphill battle to correct them.  There seems to have been some improvement since then, but I wouldn't give them rave reviews.

As far as deductions are concerned, every one of these companies is going to squeeze you for as much as they can unless you negotiate a good lease.  I have many interests leased by many companies, and the only way you can guarantee fairness is to force it on them by getting it in the lease.

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Permalink Reply by Jeffrey Beunier on July 21, 2018 at 4:12am

The liquid rich portion of the play slowed significantly over the last few years, but has since rebounded materially, largely in-part to Eclipse's Purple Haze well. The economics were very challenging in 2015-2016, Eclipse was able to dramatically improve the cost side of the equation when they demonstrated the ability to complete an ultra-long lateral. That's just one component.

There are multiple posts on this blog discussing 'stack plays' which contain maps showing the different 'thermal maturity' areas of the play - that is, whether the formation would produce dry or wet gas, volatile oil, or black oil. The economics for each area is very different and even within the volatile oil/wet gas areas, the economics can change drastically. Historically, oil/liquids had to be within a certain API range (quality) because if it fell above or below this range, then there were material deducts taken due to the limited number of purchasers for product in the area and refining capacity was gear towards a specific type of oil. That another component driving development.

Additionally, infrastructure had to catch up - its difficult to mix wet gas into a dry gas system and vice versa because of the need to process wet gas. So full development has been slowed somewhat by a multitude of factors, many more than the couple listed here.

As far as 'selling' your mineral rights, David will tell you to never sell, and every buyer is a crook, and its stupid to even consider selling, etc. Among other things, I actually buy minerals, and I believe there are no absolutes. Minerals are a prized possession, they have the potential to be very valuable, but they also have certain characteristics, such as liquidity issues (you can't trade them like a stop if you need cash in a hurry), concentration risk (depending on size/value, etc - you could have an out sized portion of your net worth concentrated into a single asset, could be a good thing, but also could be disastrous).

I fully understand and agree that there are many low-ball bidders out there, I think there are multiple types of bidders out there. I fully agree and encourage buyers to arm themselves with as much information as possible. As debated on this website on many occasions, blanket statements are dangerous. Every mineral owner is in a different position financially, or even emotionally than the next.

Some mineral owners are in an extremely fortunate position of owning a broad array of minerals spread over a wide area as compared to most mineral owners who only own a single asset. This alone creates a concentration risk, and

I think many times that people, don’t truly consider all the risks when stating “don’t ever sell”, equally as much as those on the opposite side saying to “sell everything”. No single position is correct, and no single position is the same for everyone as situations vary from person to person.
Having a huge amount of value tied up and concentrated into a single asset may not be the best decision for most people’s financial security. However, taking any bid without being informed is as poor of a decision that an owner can make…

As we all recognize, there are many factors that go into valuation and prices, some are driven by external forces, such as prices, geology, operator (are they good at what they do, are they crooks, etc.) and some are driven by internal forces (medical bills, desires to diversify, tax and estate planning, etc.).

I also don’t disagree with David that if you can hold onto your minerals you will almost always generate more cash than if you sell them - buyers are investors and expect a return on their investments. With that said, as competition has increased across the various basins, including the Appalachia, expected returns have been driven down significantly and the need for investors to be more aggressive with their assumptions, and hence take on greater risks have increased tremendous. Some of these mineral deals are very mispriced and will result in low single digit IRR’s, if not actual cash losses on investments.

And while I agree with the majority of the posts on this blog about educating oneself, I completely disagree with the notion that simply looking at operator’s presentations will provide enough insight to make a fair assessment of your acreage’s value. Operators are generally full of S*@#. If their presentations were 100% accurate, they wouldn’t have safe harbor statements in them. Further, all well results would look like operators’ type curves ever time. Well (pun intended), well results don’t reflect type curves, and most don’t even come close. They are essentially the production profiles assuming that everything goes right 100% of the time with ever well drilled - they are by definition hypothetical.

Individuals need to assess their situation and decide if they are comfortable with counting on the operators being 100% correct every single time especially when they only own a single mineral asset.
They need to ask themselves:
What degree of variance are your willing to accept?
What are my alternative investment options?
What am I willing to trade off or leave on the table from a risk/return perspective to sell a portion of my minerals and diversify into other asset classes?

At the end of the day, minerals may be one component of a person’s portfolio of assets, but they probably shouldn’t be the only component of a person’s portfolio. That’s where blanket statements become as dangerous as accepting a bid thrown your way without educating yourself as to the options and various potentials, be it potential risks, potential returns, and the potential options (including diversification).

I cringe, when I see blanket statements from her or anyone else on here. Mineral buyers are providing a service, and a mineral owner that is considering selling should educate themselves as to what they have. There are plenty of buyers out there, and everyone is receiving dozens of offers - you see that mentioned all the time, so it’s pretty hard for me to swallow the idea that there’s not a competitive market for assets in the UTICA/MARCELLUS at this point in time.

And one should consider, if I sell my minerals for $5,000, or $10,000 or even $15,000 acre, am I really leaving much on the table, and can I reinvest that into stocks, bonds, real estate, or some other asset and generate a return greater than what I would earn if I simply held on and collect checks over time. It truly a valid question to think about, and something that everyone should evaluate when they are reviewing offers.

In summary, don’t sell if it’s not a good offer, or if you don’t have any alternatives to reinvest at a higher rate, or don’t need the money, and consider selling if the rate of return on alternative assets exceeds the return of what you would earn by keeping your minerals.
At some point in time, ever bubble bursts, and some of the valuations thrown around out there remind me of bubbles.

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Permalink Reply by David Allen Lilly on July 23, 2018 at 1:24pm

I never said all mineral buyers are crooks. 

Royalties are income, not investments like stocks, bonds and real estate. Why anyone would give away income is beyond me. To sell your future income now, at 15-50 cents on the dollar in the hope that you will safely invest it in something that would pay more than the royalty would have paid is just goofy.

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Permalink Reply by Douglas on July 21, 2018 at 9:04am

That reply was very informative. Thx

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Permalink Reply by David Allen Lilly on July 23, 2018 at 1:27pm

Check out the thread just started about Ascent MC man, it might have some information of use to you. I wish we would have been able to hold off Chesapeake two years ago, if we would have been able to wait our royalty during that first year of fantastic production would have been much higher.

I still feel like oil prices will continue to push upward and you may be very happy you didn't get drilled early.

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