Are mineral sales dead due to low oil prices?

Hi, I am known to some of you having done yours or your neighbors' mineral appraisal for estate, probate, sale or other purposes. Now, I wonder, if actual sales of mineral interests have stopped. I used to track such sales in court house records and use the old data for sales comparison to estimate the value of the mineral property of my new clients.

The offered price in $ per acre should have gone down somewhat due to the drastic drop in oil prices, while natural gas prices did not drop as much. Also, the drop in drilling and completion activity would influence the market. Has anyone seen that happen? Or did the offers simply dry up? If you know of any recent offers, please tell me about them.

We are entering a period of "bottom fishing" when some of the small operators, if saddled with a lot of debt, become targets for takeover. Therefore, operators will change, and so will their drilling and completion strategies. A lease may be held, if drilling has started; but just drilling will not frack and complete a well. There will be no royalty income in the near future. Therefore, the underlying mineral rights are worth less under "only drilled" wells as compared with wells being prepared for completion and production.

I am currently appraising some mineral properties in Moorefield Township in the area where American Energy overlaps with Gulfport. There are several new wells drilled by American Energy, but are they "just sitting there" holding the leases, or are they being prepared for completion? And what about pipelines when you get north of the completed Gulfport wells along Piedmont-Cadiz Highway 22?

Regards to all my local acquaintances!

John Gustavson, Certified Minerals Appraiser

 

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Permalink Reply by Joseph-Ohio on March 23, 2015 at 6:35am
Seems to me that although action (development and production) would impact selling prices of mineral assets / land it can't / shouldn't be the only factor.

These commodities aren't renewable but 'finite' (unless you can wait / survive a few hundred thousand years, a couple of more / new ice ages / continental drifts / meteor impacts / extinction events etc.) for new oil and gas pools / reservoirs to develop.

All of that would surely impact price as well don't you think ?

I also think there's a lot of market management tactics being applied by the Gas and Oil Power Brokers myself - what's your read on that score John B. ?
Permalink Reply by John B Gustavson on March 23, 2015 at 7:07am

Yes, you are correct. Also, most buyers of mineral rights (while looking to the long term) look at the probability of receiving early royalty income and are willing to pay more for such.

John Gustavson, Certified Minerals Appraiser 

Permalink Reply by Joseph-Ohio on March 23, 2015 at 7:38am
Understandable but how much more / less is a hard thing to predict (isn't it) ?

Thanks John B.
Permalink Reply by Philip Thackray on March 23, 2015 at 7:55am

John,

I just saw this offer from First Land Services, Cranberry Twp, PA 724-540-3013:

About $5000.00 per acre based on an 18% royalty.  This properties is in Forward Township, Butler County, PA.  The property is leased (XTO and Rex) and is in a declared unit.  This area is wet in the Marcellus and Burkett shales and dry in the Utica.  A Rhinestreet test is be drilled locally by Rex - it should be wet as well.

Phil

Permalink Reply by John B Gustavson on March 24, 2015 at 6:46am

Thanks, Philip. That is a pretty good offer. It may be a little on the high side (low oil prices), unless there are distinct development plans for the pooled unit. I appraised a property just prior to its drilling stage in mid-2014 in Muddycreek Township, just north of Forward. I was fortunate to find many 2013-14 comparable sales in the local area from the court house records. I attach an image of the comp sales shown with red pushpins. More details will be needed to fully appraise the offer, which you forwarded, because the Rex activity varies greatly on a local basis. However, a potential buyer would not waste his time looking deeper into that particular offer.

Thanks again.

John Gustavson, Certified Minerals Appraiser

 

Attachments:
Permalink Reply by Puzzled on March 23, 2015 at 10:04am

An offer for 10k per mineral acre was made to purchase minerals in Monroe county ohio this month.

These minerals were unleased and un drilled

Permalink Reply by Joseph-Ohio on March 23, 2015 at 11:14am
Good to know.

Thanks much.
Permalink Reply by John B Gustavson on March 24, 2015 at 6:59am

Hi Puzzled. The 10k may not be unreasonable, because the property is unleased. A potential buyer might turn around immediately and lease out the property and re-pocket $3-6k as a lease bonus. And still benefit from future royalties. It is all depending on the location and the local activity.

Thanks for your input.

Regards,

John Gustavson, Certified Minerals Appraiser 

046aqwyftq0soPermalink Reply by 046aqwyftq0so on March 24, 2015 at 5:26am

John, Email me, Britain.m@doradopetro.com

Permalink Reply by John B Gustavson on March 24, 2015 at 7:09am

Done.

Permalink Reply by Jonathan H on March 24, 2015 at 9:11am

Here are some notes for your reference.

Last year, I was offered $8500/ acre for a 1990 HBP 12.5% lease. That lease has since ended due to lack of production. Last month I was verbally offered $8 - $10k/acre for unleased minerals by someone who on these forums had posted numbers last fall of $12.5k to $14k per acre for 18% and 20% leases. Another company who claimed to pay out $18k to $22k per acre last fall declined to make me an offer this month.

Based on that, I would say expectations of long term value are down significantly; I assume it is based on a combination of lower prices, a potentially longer time horizon for drilling to happen, and awareness of the public knowing of the large drop in oil prices and being told that prices will stay low for a long time.

My own understanding of past oil prices says they won't stay low as long term as some claim - the oversupply of crude globally is only about 2 or 3% of production and it is highly likely instability of some type (strikes, fighting, breakdowns, etc) is likely to occur soon and reduce that oversupply, causing prices to shoot back up again.

Permalink Reply by John B Gustavson on March 24, 2015 at 9:40am

Hi Jonathan H.

I totally agree with you. Let me know, if the potential buyers were any of the parties on the attached list. I use these to search court house Grantee records to find recent mineral sales.

Thanks again for your input,

John Gustavson, Certified Minerals Appraiser

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