How much royalties per acre?

I live in Belmont County. I own 170 acres and am under lease to Gulfport. About 100 acres of my land is "landlocked", situated between interstate 70 & Gulfport's Eagle Creek well so it is very unlikely it will ever be drilled. I'd heard that the other 70 acres might be including in a drilling unit in 2021. 

   I've received an offer to buy the mineral rights for the whole 170 acres, not just the 70 acres. I'm trying to decide whether to sell or not. One consideration is how much I might make in royalties if I were to wait & they'd actually drill under the 70 acres.

I'd like to see if any people could give me an estimate of what a monthly royalty check might be per acre with a 15% royalty percentage. That might help me decide.

  I know there are people out there who say you're a fool if you ever sell your oil & gas rights. I'm not interested in that noise. I'd just like to have some guess as to what I might receive in royalties so I could weigh that against the offer of a sure thing now.

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Permalink Reply by bo boboski on December 29, 2017 at 5:59am

If they cant give you at least $15,000 per acre,I'd say no. Unless you need the $ now,or you don't care if you  get your $ over a 20 year stretch. You also have to think about giving a lot of that $ to Uncle Sam right away,or space that out over the years also.People don't like to reveal how much they are receiving in royalties, but from what I've read about Belmont Co. wells, seems like a good guesstiment would be Over 20 years averaged out,about $100 per acre,per well. You could be in a unit with 1 well,or 6 wells,you'll never know till they drill. If Ohio ever figures out how & when to lease the minerals under the interstates, your whole 170 acres may be drilled. Everyones situation is different and it's a crap-shoot trying to decide what to do. good luck and hope you get plenty of responses from other Belmont members.

Permalink Reply by Blueflame_02 on December 29, 2017 at 6:22am

Here is a theoretical answer. Let's say GPOR claims 2.0 Bcf/1k. And they decide to drill a 9000 ft lateral.. 9000*2.0 = 18.0 Bcf over the entire life of the well - 18.0 Bcf X $2.00 flat gas price = $36 million dollars.. $36 million X 15% = $5.4 million that is the royalty share. Now taking your contribution of 70 acres in lets say a 600 acre unit = $5.4 million X (70/600) = $630,000 over the lifetime of the well. This equates to $9,000 per acre per well over the entire life of the well. This is very oversimplified with the assumption the well produces that much gas in it's life and with the obvious risk of gas prices fluctuating or the risk of the wells never being drilled. 

It becomes difficult to look at it on a per acre per month basis because after 6-12 months, the wells begin to decline, therefore your $/acre begins to drop. Again, I would agree with most everyone else that this is a crap shoot. Goodluck in whatever you choose!

Permalink Reply by Bullfrex on December 29, 2017 at 7:49am

You could also consider selling an undivided percentage of all your mineral rights.

This might go something like taking an upfront cash payment for selling 50% of your mineral/O&G rights while retaining the other 50%. The percentage is negotiable, so you can tailor it to fit your needs.

That would get you some cash now, yet keep you in the game should the acreage ever be developed for O&G.

I would refrain from selling individual parcels, as the prospective buyer may know something about future development, and attempt to buy only that parcel. An undivided interest keeps both parties as whatever % owners of all the rights.

Permalink Reply by G.H. on December 30, 2017 at 1:36pm

I've always said that if you are on the fence about selling your minerals that selling an undivided interest is a very good option.  You get a nice chunk of money now and you also get some royalties if and when a well is drilled.  You could also sell the other 50% (or whatever you retain) later if prices improve and you feel so inclined.  Another thing to consider, look at 3-4 year ago when people were being offered up to $18,000 or so per acre and some people were still saying that wasn't good enough... oil and gas bottomed out in 2015 and hasn't recovered to prior levels... if there was another prolonged period like that, you would probably be happy if you sold for a nice price.

Permalink Reply by Ed on January 3, 2018 at 12:32am

See page 35 of Antero company presentation at:

http://s1.q4cdn.com/057781830/files/doc_presentations/2017/11/Compa...

Per that page a 9000 ft lateral generates 19.8 Bcfe.  Average lateral spacing in the Utica is 700 ft, so a 9000 ft lateral includes 145 acres (700x9000/43560). As such each mineral acre contains 135,551 Mcfe (19,800,000,000/1000/145).  Using a 20% royalty, each acre you own should generate 27,310 Mcfe.  Using $3/Mcfe, each acre you own contains $81,930 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 $64,275 ($81,930 - 27,310 Mcfe x $0.63).

Adjusted for a 15% royalty = $61,477 ($81,930 /20 × 15) per acre with no deductions and $48,206 ($64,275/20×15) per acre with transportation deducted. 

Note that Blueflames is assuming that it takes 600 acres to produce that 18 Bcfe, it does not. A 9000 ft lateral is typically on a 700 foot spacing which means it only takes 145 acres to produce his 18 Bcfe, not 600 acres. That 600 acre unit will eventually have FOUR wells, so multiple his numbers by 4 to get the royaties from all the wells a 600 acre unit using only a $2/Mcfe  ner riyalty price for your gas.

Selling for the $8,000 to $15,000 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:

https://www.bloomberg.com/research/stocks/private/snapshot.asp?priv...

Permalink Reply by deutchen on January 3, 2018 at 4:28am

I think I've got it now.

The Family well is right across I-70 from my 70 acres.
Shalecast.com predicts the production over a life of every well now producing.
Shalecast.com forecast 33 bcf for the life of the Family well.The Family well is made up of 3 laterals.
Those are Family 1-32h projected to produce 12 bcf, Family 2-32h at 10 bcf, & Family 3-32h at 11 bcf.

That's 33,000,000 mcf assuming there are 1,000,000 mcf in 1 bcf.
Assuming 700 acres in the entire drilling unit that's 33,000,000 mcf / 700 acres = 47,140 mcf/acre over the life
of the well. Under my 70 acres there would be 3,300,000 mcf. My share of that would be 3,300,000 x 15% or 495,000 mcf.
495,000 x $3/mcf = $1,485,000. $1,485,000 is what I should receive over the life of the well. $1,485,000 / 70 = $21,214/acre.

So $21,214/acre is what I should should receive from a buyer using the Family well as a reference.

However when you consider that 100 acres of my 170 is blocked in between I-70 and the Eagle Creek well
& probably useless that would spread the entire value of $1,485,000 over 170 acres instead of just 70. $1,485,000 / 170 = $8735/acre.
That is what I should receive to break even when you consider that 100 acres would probably never see a well
and the buyer was paying for 100 acres that were useless to him.

Also remember that if you sold you'd be paying capital gains tax of 15% as opposed to regular income tax of probably 35%.

 

Permalink Reply by bo boboski on January 3, 2018 at 9:01am

You can do all the math, you can try to guess what the oil&gas co.s will do, you can hope you are close , but in the Utica, the best bet is to "assume" nothing. and hope for the best.Some of us will get lucky, and some of us will be taken for a ride.  law suits wont help. it'll be like playing cards,you'll be stuck with the hand that is dealt to you. may get 4 aces, may get a whole lotta nuttin. 

Permalink Reply by Bullfrex on January 3, 2018 at 12:25pm

Deutchen

That is a Happy thought, but I believe it is unrealistic for expect someone to pay the amount forecast to be recovered over the life of the well. There is no incentive to buy it when there is no profit to be made.

It might be similar to placing that amount of money in an account that pays no interest, and withdrawing only a small fraction of it for the next 20-30 years....no profit opportunity....no financial gain=no reason to buy.

I am not a believer of royalty forecasters, and as bo boboski said, you can never be certain of what the gascos will be doing a year from now....let alone two or three.....and most certainly gas price can never be forecast in the long term.

I understand your confusion, as I have been there. If you need cash for any reason, or would like to enjoy some benefit from your rights now, the sale of a percentage is a viable option, but not at the full recovery price....it just won't happen.

Permalink Reply by Blueflame_02 on January 3, 2018 at 6:41am

Ed - Correct, I only utilized one well on "600 acres" as a middle point for reference. It is possible that GPOR doesnt drill 4-5 wells. XTO came in and permitted 4-5 wells per pad in Eastern Belmont and ended up drilling only 1 well on those pads so that they could hold leases - Doesn't mean they wont come back but there is that risk. Also, most companies are pushing towards 1000 ft spacing in the Utica and staying at 700ish in the Marcellus. And in Belmont county, depending where you are, you are less likely to have the transportation costs due to it being a dry gas area. 

Permalink Reply by Blueflame_02 on January 4, 2018 at 5:45am

For sure. I completely agree with you. Also that plat map is for Antero in the wet gas areas of Noble/Monroe - Antero has decided to tighten spacing in the wet gas areas as they feel that it increases EUR without detriment to the net asset value. In Belmont (or dry gas areas), companies are sticking with 1,000 ft spacing for the most part. See attached of Gulfport pad in Belmont. https://gis.ohiodnr.gov/MapViewer/download.ashx?390C6235-897D-4744-...

Permalink Reply by Ed on January 4, 2018 at 11:31am

At the 1000 ft spacing and 2.2 Bcfe per 1000 foot of lateral obtained by Eclipse and Antero, your numbers using $2/Mcfe would be $28k per acre for 15% royalty and $37 k per acre at 20% royalty.  If prices end up at $3/Mcfe, your numbers become $43k per acre at 15% royalty and and $57k per acre at 20%.  Regardless, selling everything you own from the surface to the bottom of the earth to mineral buyers for the $9k to $10k  per acre currently being offered is highway robbery. They are not even paying the 1st year well royalty from just the Utica/Point Pleasant formation. 

Permalink Reply by Tusc-county-man on January 5, 2018 at 1:53am

to each his own.....

at 10K/acre i'd be a seller

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