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!
Deutchen and GH,
In the initial stages of the leasing around Guernsey county Ohio there were land men everywhere and they signed everyone they could.
Things are different now, and as I stated in my first comment, if someone is currently offering to purchase your mineral rights I will promise you that they know more than the landowner and definitely know that your minerals have value.
Can we agree on that, that today, if someone is offering to buy your minerals it is 99.999% likely the buyer knows that they have value, meaning the property is 99.999% likely to be drilled ?
As for the drilling under the interstates, I assume you are in Ohio, maybe not, I have seen units set up to drill right up to the interstates here in Ohio and assumed they were thus because they couldn't get the state to sign off on going under.
Regardless, I would offer two points of view on this.
If we agreed above that it is 99.999% true that anyone wanting to pay you for your minerals currently knows that you will be put into production. A buyer may offer to buy the rights to your entire property knowing that a portion will not be produced just to get at the portion that will be produced.
Regardless, today things are much different than they were in 2012, and there is almost zero doubt as to value if someone is offering to buy your lease. I have often wondered why a drilling outfit wouldn't engage in some sort of effort with a buying entity to purchase the rights to the leases the drillers offered in the first place as it effectively would lower the cost of drilling the lease acreage.
As to the interstate issue, I did a quick google search and found nothing to address it either way however I thought I saw that this issue was being addressed in the state government. Remember how quickly things can and do change in this industry, what today is a hindrance can be quickly removed tomorrow.
As I have stated over and over I have no dog in this hunt, I didn't sell any of my minerals and thus feel no obligation to defend the selling of mineral rights. I also am not in the business of profiting from anyone selling, as I assure everyone that this site has those folks represented more than some of us think. I am not accusing either of you of that but at times I have wondered if this site exists solely as an outlet to buy mineral rights.
There are no hard feelings either way, but I do feel the need to firmly explain what the sellers are in fact doing if they sell, which is giving away more than half of their money to a buyer who has far better knowledge about the industry than does the seller.
Like you say David Allen Lilly, these buyers have a much better idea of what the landowners minerals are worth then the landowner does.
For example almost every day we received an offer to either buy or lease our property a couple years ago. In fact, one offer was for $250,000. We could have used the money! It would have helped us immensely. We chose to pass on this deal. We still get offers today.
Our answer is still NO! It makes no sense to pack up and start over. Oh sure the living might be a little easier for a short time for my wife and I. But then our son and grandson will have no chance to benefit from whatever might be harvested from underneath the property.
Life and living is far more then a short term and maybe larger bank account that will likely be piddled away for useless purposes.
More then one family that I personally know came into a great deal of money. They bought a new house in an upscale neighborhood. Then bought two matching vehicles and refurnished their new house.
Today they are looking over their shoulders to see if the garbage man is coming to collect his money for service.
I refuse to be riding that kind of SEESAW life style!
David, I don't really disagree with your points of view. I agree, with the caveats that sure money today is worth more to some people than "maybe" money in the next few decades, there is always a slight chance that your property or part of your property may not be developed, and hedging your bets by selling a portion may be worthwhile to some people. The areas in Guernsey that are worth money are now well known. You can look at a well map and see that most areas in certain townships will be or are currently developed. It's just a question of one's personal financial situation and the risk they are willing to take. Also, I wouldn't say that the mineral buyers all know the value of the properties for sure. Clearly they have bought some properties, such as deutchen's, that didn't pay off as well as they hoped because of situations like deutchen's with the interstate. They buy a lot of properties and reduce the potential risk/loss of any single property by spreading their investment around and making money on others. Just my two cents, I don't advocate for selling or holding, I advocate for considering ALL possibilities and making the best possible decision based on a personal situation.
If you sign with a "land man" and you sign for say 18% Royalty, do you get the full 18% of what the oil company is paying when they drill even if the land man resells your contract to the oil company drilling? Or do you get 18% of what he gets? Thank you.
Your lease terms would not change even if the person holding the lease does. In our case we signed with Antero and they promptly paid the lease bonus.
At maybe 2 years or so they sold our lease to Eclipse and Eclipse sold a portion to Chesapeake. So I thought I was smart to sign with what my research showed me was the best producer only to be traded out or sold to some of those with a lesser reputation.
Chesapeake has produced some of our acreage for about 2 years now and I have no complaints as they have held to the lease terms as as I can determine.
Eclipse is at the moment fracking the unit with the remainder of our acreage and if they hold to the lease terms, as I expect they will, I will be satisfied.
As far as I can tell, we were in a landowner group that failed the landowners, the land man "representing" us was being paid a per acre fee. I was never made aware of any royalty shave he would realize and the lease terms held as signed off on regardless of who held the lease.
Hope this helps, I haven't seen a lease yet that allowed lease terms to be altered as the lease changed hands.
Thanks for the info, trying to get as much information as I can about this issue before we decide what to do which will probably in the far future rather than the near.
See page 35 of Antero company presentation at:
Per that page a 9000 ft lateral generates 19.8 Bcfe. Average lateral spacing in the Utica is 1000 ft, so a 9000 ft lateral includes 206 acres (1000x9000/43560). As such each mineral acre contains 96,117 Mcfe (19,800,000,000/1000/206). Using a 20% royalty, each acre you own should generate 19,223 Mcfe. Using $3/Mcfe, each acre you own contains $57,670 in royalties under a gross proceeds lease (i.e. no deductions). Note Antero states transportation costs are $0.63/Mcfe, which would reduce the per acre royalty to $45,559 (57,670 - 19,223 Mcfe x $0.63).
Using just $2/Mcfe for the entire life of lease, each acre you own contains $38,457 in royalties under a gross proceeds lease (i.e. no deductions). Using $0.63/Mcfe for transportation costs reduces the per acre royalty to $26,336.
Selling for the $6,000 per acre that mineral right buyers offer for the surface to the center of the earth is highway robbery. By the way, mineral buyers can be mere fronts for the driller. For example, Westhawk Minerals is a buyer a minerals in the area and they are a subsidiary of Gulfport. Don't believe me, click link below:
Update on selling O&G rights. I think we can ALL agree that if drilled, one would realize more income in royalties and probably much, much more income over the life of the well verses selling O&G rights. Regardless, I am still entertaining offers. I have spoke to my lessee and 2 local drillers, they stated they are not buying rights currently & don't have third parties buying in my area. After speaking to over a dozen entities i have concluded that most GMS members have more knowledge regarding lease terms, geology, future drilling plans, contract negotiations, simply etiquette, sales experience ...etc. And I'm not convinced that most mineral buyer/flippers/agents/ landman are privy to insider info on future drilling plans. I feel they are pushing out low offers just hoping dispirit mineral owners will take the bate. My offers ranged from $3600 to over $8K/ per acre. My personal algorithm to sell computes between 13-18K/ per acre. Joke ;)
My realistic # Must be in the neighborhood of 15K/per acre and that would be strata specific, not everything included all the way to the earths core! I don't have to sell so I can brush off any low ball punkass offers from these flippers. I do agree with others that believe offers will increase when drilling permits are approved and units are established.
Ed, thanks for your input. Just wanted to point out that when I started this discussion I was only using an example! My area received bonus payments averaging between 5-7K per acre & 20% royalties. 2 times the bonus amount to sell would be between 10-14K.
As for my recent interactions with some of these agents/landman, Im leaning more towards keeping my rights and not even selling 50%. If I have time and feel inclined to post the specifics regarding my dealings with some of these outfits, it will likely leave a bad taste in your mouth, like it did mine....like these guys don't have a tough enough job. I sort of feel bad for the decent ones...many bad apples make the whole bushel look rotten.
I'd like to jump in on this and say in my humble opinion, and just my position is that selling your minerals is a bad idea. But I'd buy when can afford, but a seller wanting to sell is not my decision, it's theirs. I will say that if you are going to sell then sell to someone locally where down the road the economic windfall is realized by your community. Maybe if you want to sell see if a local farmer already in a unit would want to buy and by reinvesting some of their royalties. But selling to an out of area or out of state entity or out of community entity just means that the future income realized will likely be spent elsewhere and aside from the property taxes the income taxes may go to even another state, perhaps if the corporation or LLC is out of state. If you must sell shop around to your own community! You'd be surprised how well farmers understand real estate. They just don't send out the fancy postcards or go door knocking like some kind of pauper acting all down trodden with a sales pitch like they just want to make an investment to look out for their kids and grand kids. That the sales pitch of a minerals buyer hitting up farmers in my area, still even after buying farm minerals on 14 farms in PA and now 4 in Ohio since November - cash. The guy buys through his out of state LLC and is from 4 states away.
I need to make a habit of editing my post before pushing reply....voice text & auto correction on my phone &/or this site constantly changing or misspellng words