High offers to buy minerals

I have been hearing of companys offering $12000, $13000 even $15000/ acre to buy mineral rights. So far I haven't been able to find out who is making these offers. If you've received an offer in this range could you please tell me who made it? Thanks.

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Permalink Reply by bo boboski on January 22, 2014 at 12:01pm

You wonder why no one is leasing in Guernsey county?  It's because it's SOOO much better for the O&G co.s to just BUY the mineral rights thru Royalty buying companies that they create,or fund.That way; they don't have a time limit to drill and don't have to pay any royalties. Some are buying rights on land that has already been leased. Possibly their own leases. I'm am really surprised at how many people are actually selling!   It's like;  do I take the $100,000. now, or wait 10 years or so and  make millions? The old saying about "a bird in the hand"  comes to mind. A guy near Caldwell told me  He was offered $22,000. per acre for his mineral rights. Highest heard of yet.  They told him he'd have his $$$ within 30 days.  His chances of getting in a drilling unit soon must be high.

Permalink Reply by scott peterson on January 22, 2014 at 12:31pm

Exactly Bo, everyone has a selling point if making an educated decision based on financial circumstances, age, heirs etc etc etc etc etc.................I would not be surprised if offers to sell minerals in the "hot area" .....that being the critical  variable of course and ever changing at this early stage of getting into the 20k range. 

Permalink Reply by Bill Barnaby on January 22, 2014 at 12:36pm

I'm just curious what the real value will amount to... 3-4 times the current offers or even more. Someday we'll know!

Permalink Reply by evan on January 22, 2014 at 1:04pm

Good point bo.  I've always heard some of these companies send their own sister companies around to buy mineral rights.  Makes perfect sense because of the time limit and many other reasons

Permalink Reply by Kevin in Belmont County on January 28, 2014 at 1:34am

I don't think anyone can make the decision for someone to sell or not to sell their royalty interest. I think it just depends on someone's individual needs at the time. But just some information for thought here. I have had some offers of $10,000 per acre myself, and have read of some offers on here as high as $15,000 - $20,000 and acre. If you just set back and analyze the numbers, things just don't add up. Myself personally I smell some big rats here. I know for a fact that some of the bigger players in this Marcellus & Utica gas play have companies that are subsidiaries of their companies out beating the bush's trying to buy up landowners royalty interest from their lease's. And after crunching some numbers they are the only ones that can really win. Take the unit I am for example, the horizontal of the first well in this unit tested at 20Mmcf per day and isn't it kind of interesting, that at the time these numbers were released most of the bigger players still had a large group of land men out in the field trying to acquire acreage for their future well pads. I know for a fact that the same well that tested at 20Mmcf has never produced that from day one as a matter of fact on average it has produced about 7. Its not because it couldn't, its because it is being restricted back to that amount. I was told that directly from the company. So when these companies are trying to acquire your acreage their land men are out telling you about how your going to be a millionaire after leasing your acreage and how you should sign before the offers go away. And isn't it kind of ironic as some as the royalty checks start to come in from these wells and the royalties are much lower then we were told because of lower production numbers and heavy deductions from post production cost that were put in most landowners leases with the "market enhancement clause". So now that they have landowners doubting the value of their lease's. And then low and behold you have these companies coming around and wanting to give you money for your royalties. It's not a coincidence. Take and offer of ten thousand an acre on a 50 acre lease just for example,  which of course would be $500,000.00. And then take some of the production numbers that you read about. Take $150.00 per acre per month. 150.00 X 50= 7500 a month, $500,000.00 / 7,500 = 66.6 months or 5.5 years just to be at break even and that's not deducting state and federal taxes or taking into account the actual decline curve. To make a long story short, we sell our royalties back to subsidiaries of these companies, multiple wells are drilled on pads, wells aren't restricted back anymore and O&G companies are laughing all the way to the bank. I just read recently that a CEO of one of the major players here in S.E. Ohio stated that well drilling cost is about 9.5 million dollars per well now. I am sorry but the production numbers just aren't adding up with what these companies are investing in these wells. Just some food for thought!

Permalink Reply by evan on January 28, 2014 at 2:14am

Wow, good post and probably 100% correct

Permalink Reply by Ryan N Nyardy on January 28, 2014 at 2:15am

As someone who has worked on this side of the fence for several years, and has worked with nearly every major producer in the Utica, I find that hard to believe that a company looking to earn returns from their drilling investment would restrict the flow, simply to keep their projections low. More than likely, there are other factors weighing in on the restriction of production. Could be that they are not networked into a large diameter gathering system? Perhaps it's due to the profit margins they see, for the price at which they can sell it currently? Perhaps I'm wrong? (Wouldn't be the first time!)

In regards to what companies are offering vs. what it is worth. let's keep in mind that these companies are in this to make money. Once we get to the point where the cost of purchasing/leasing these minerals begins cutting into too much of their predicted profit margin, we will see offers cease. How far are we from that point? Nobody knows. As you pointed out; selling and/or leasing your minerals is to each their own. It is intended for those who want guaranteed cash now, and in return are willing to weigh a portion of (possible) future earnings. For some it's a good choice, and for others it is not. 

Also, check this article out: http://www.ohio.com/blogs/drilling/ohio-utica-shale-1.291290/4q-com...   - Every E&P company has a different margin of cost to construct/drill/produce a well... This breaks a few of them down.

Permalink Reply by Kevin in Belmont County on January 28, 2014 at 2:50am

Ryan,

I was told by the contact in charge of the unit I am in directly that the well is being restricted. I know what they claimed the first well tested at and I know what it is producing from my royalty statement. Now, I also know there are other reasons that the well is being restricted, the full infrastructure is not in place yet to handle the volume. But, I also know this it is a perfect opportunity for some of the major players to get the interest back in their royalty payments before the infrastructures are in place and before a lot of these pads have multiple wells on them. It will be a lot quicker for them to make their initial investment back on developing these wells when they are not paying landowners 20% of production on these wells minus the deductions the slid into the leases of course. I am sorry but the numbers don't lie. I believe this is a calculated action on the O&G companies parts. If it isn't why wouldn't they just be investing all of their money on developing the acreage they have leased instead of setting up subsidiaries to come out and purchase the royalty rights back from the land owners.

Permalink Reply by Ryan N Nyardy on January 28, 2014 at 3:02am

I'm not saying you're wrong, however, I think you're making too broad of a statement... Of the five companies I've spoken with, currently purchasing minerals here in the Utica, four of them consisted of groups of individual investors who had no direct ties to any E&P company. That's just from my personal experience. Are there some out there who are "wolves in sheep's clothing"? I'm sure there are... Do these make up the majority, or even a decent percentage? I don't believe so. Minerals are bought/sold as a commodity, as is gold, silver, corn. etc... Various groups of investors are in play here.

Permalink Reply by Kevin in Belmont County on January 28, 2014 at 3:33am

Ryan,

I agree with you  whole heartedly about royalties being a commodity. Rule of thumb is buy low and sell high as we all know. I guess my only point of writing about this was . We are all in our different stages of our lives, some may need the money immediately and by all means if it is in their best interest to sell, then they should sell. If you don't have a big need for cash right now then maybe you should wait. But regardless of what someone decides is best for them, do your homework on this matter. I have done a lot of exploring on this issue and I just wanted to throw my two cents worth into the discussion. As I have already stated if you put a calculator to these numbers they just don't add up. Why would O&G companies or long term investment companies put money into buying back these royalty interest if they weren't going to make a hefty profit out the other side of the deal. I use an investment firm out of Chicago and made 30% on my stock portfolio last year, which is a pretty good return on your money. I know if I can do it and make that kind of return I certainly know they can. Why would these companies risk investment in these royalties if they didn't expect a very high return on their money? I think there is a lot more to this then we are seeing or being told.

Permalink Reply by Ryan N Nyardy on January 28, 2014 at 3:45am

I agree... Nobody is going to invest if the return doesn't outweigh the risk. My point is that it plays both ways when looking at the "true value" of what lies underneath us. 

Permalink Reply by Sam Moore on January 28, 2014 at 4:15am

Was told that one company that is having great success in this area has estimated that each acre will produce about $700,000 over the life the well.  If you have a 20% lease and they are offering you $14,000 per acre that means they are willing to pay 10 cents on the dollar.  Leases here started out at $1000 to $1500 an acre and are now in the $5000 to $7000 range buying minerals started out in the $4000 to $5000 range and are now in the $10000 to $15000.  I would not be shocked to see it go to $25,000 to $30,000 in the next 3 years.

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