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 David Cain on December 29, 2017 at 1:35pm

Deutchen,

I am not receiving royalties so I have no first hand knowledge on how much is being received.  However, I have heard through the grape vine that in eastern guernsey landowners were getting $600-$1,000 per month per acre when a well first started producing on a 20% royalty.  This amount would continue for the first 8-12 or so months and then the decline curve would take effect.  This is pure guessing on my part but I would think that the second year' royalty may only be half of what is received in the first year.  And the 3rd year would probably only be about half of what is received in the second year nd so on.  At some point the decline curve would level off (maybe around year 6-8) and you might get $50-$100 per acre per month.   Again, this is pure speculation on my part and the numbers get less accurate as you go out in time.  I don't think any wells have been producing in our area for more than 5 years so who knows for sure what a well will produce 10 years down the road.  

For what it's worth, someone on another thread referenced an Antero presentation that stated a  landowner would receive $50,000 - $60,000 in royalties per acre over the life of a well.  I think that number is VERY optimistic.  

Again, this all speculation on my part after talking to different people and following this web site.  Good luck in your decision.

Permalink Reply by deutchen on December 30, 2017 at 9:43am

Thanks for the replies everyone. 

Permalink Reply by G.H. on December 30, 2017 at 1:34pm

I also think that $50,000-$60,000 is very optimistic.

Permalink Reply by deutchen on December 30, 2017 at 2:52pm

I've looked at the shalecast.com website. It's very interesting. They show how much has come out of any well you search for & projects what you will get in the future. I brought up the Eagle Creek well since it's right next to me and I figured the production out of it should be approximately the same as what a well next to it with my 70 acres would be. I plugged in my percentage as 10% since I own 70 acres & the drilling unit for Eagle Creek is about 700 acres. I think this is right but I don't understand how I would specify that my royalty % is 15%. I don't see where you would plug that in to arrive at your correct royalty figures. Has anyone else used the Shalecast site & knows how that works?

Permalink Reply by Magnetron12 on December 31, 2017 at 5:35pm

Try this. Say the net for gas and oil for last month was 400,000 for one well in the 700 acre unit. Multiply that by 15% equals 60,000. Then take 10% of that as your ownership % and you get 6,000.00 per month.  

Permalink Reply by bo boboski on January 1, 2018 at 2:44am

you've got to consider the possibility of them including you in a producing unit,but only include 30 acres of your land. 

Permalink Reply by Bullfrex on January 1, 2018 at 3:28am

There is another possibility to consider. The O&G company may put additional wells on the same pad in the current production unit, leaving you without inclusion into a unit.

I would be wary of ANYONE claiming to know what will happen, and when, in this business. Three years is almost an eternity in the O&G development. Much can change, and frequently does.

Best of luck to you in the future.

Permalink Reply by bo boboski on January 1, 2018 at 5:33am

I really like the idea of selling 50% of your minerals to a third party. You'll get some cash now,but your future royalties will be managed/monitored by that third party better than you can. 

Permalink Reply by Bullfrex on January 2, 2018 at 1:13pm

If you are going to market a percentage of your rights, using a broker is a good litmus test for the asset. They should have an idea of what properties (rights) are currently listed, and you can get a feel for what to expect.

Take your time, research every offer (they usually will not disclose who made an offer.....just an amount per acre) and be aware that lowball stuff will be the first offers.

You can get a sense of what may be happening soon in your area, because the offers will suddenly increase for no apparent reason if there is activity in the near future. These buyers somehow know when things are picking up. Hmmm, I wonder how they know?

Permalink Reply by jason irvine on January 3, 2018 at 6:54pm
I would do everything in my power to not sell the rights. It is probable that you will get paid a low end amount. These companies will gamble but not to the point were they lose money. Also, the price for this would be based upon current gas prices which appear to be on the lower end of the sprectrum.

If you look at gas prices worldwide, we obviously have a glut. But with the expansion of oversea sales and midstream growth, we will be able to sell our gas for better prices. Plus, the demand for cleaner burning fossil fuels on the rise, the price of gas will rise along with demand.

Keep your rights, the value of your property will increase with the global demand and your future royalties may be worth alot more by the time they remove it.
Permalink Reply by Bullfrex on January 6, 2018 at 3:20am

Each individuals' situation is unique.

I suspect everyone here agrees, that in a perfect world, you would retain all your assets. But there are circumstances where it might make sense to sell, or at least liquidate a percentage of ones' rights.

Health concerns, age, economic, lack of heirs....there are many reasons why 'holding' might not be the best choice or fulfill the needs of individual/family needs.

Waiting for the goose to lay the Golden Egg of production can be a fun exercise, or it can result in a squandered asset, providing little to no benefit for the owner in their lifetime.

And after all is said and done, isn't the economic benefit what it is all about?

Owning and managing a Natural Gas asset is a gamble at best, and using company presentations (where the sole purpose is to attract new investors and retain the current ones) as the only source of information in the decision process may not be the best or most reliable course of action.

If you have the time, educate yourself in all aspects of NG E&P in your area....read this forum, and remember that much of what you read posted here (ESPECIALLY this post....lol) are OPINIONS.

We (my family group) were in the very early stages of marketing a portion of our rights, when the Golden Goose finally showed up!! If the goose had waited another year or so, we undoubtedly would have sold some percentage.

It is really all about time....how much do you have, and how willing are you to put in the long hours to educate yourself.

The Best of Luck to you in your journey through the 'gas patch'!!

Permalink Reply by David Allen Lilly on January 10, 2018 at 7:24am

They are your minerals and you are free to do with them what you want.

Ask yourself two or three questions as you try to decide, although you seem to at least be leaning heavily towards selling:

1) Does the buyer of your minerals know more, same or less than you do about what your minerals are worth ?

Obviously no one would try to say that a mineral buyer is just going to throw the dice on an investment risk without knowing what they are doing. I have seen it opined, and I believe it, that there are some buyers who are fronts for the actual producers themselves. Anyhow, I cannot believe that very many of us here have any but a small percentage of the information that the buyers have. Theirs is a big money business with big consequences for incorrect investments.

2) Assuming, well, knowing actually that these buyers know what they are doing as they invest their and others money, don't you wonder why they would want to buy your minerals ?

Don't you think that there is a far better than average chance that the buyers have enough information which you are not privy to that makes them comfortable with the transaction ?

I would think so.

3) Lastly, what percentage of the actual value of your minerals do you think you are going to receive ?  How can a professional investor offer you more than 50% ( no way it will be near that high) of what they believe, with their far better information, of what your minerals are worth ?

Do not be so sure that you have "landlocked" acreage that will never be drilled. If someone offers to buy the mineral rights to those acres you might consider that they are likely to be developed eventually. 

As for your figures about royalties being received in eastern Guernsey county, you are close at $750-$1000 an acre, we were around that with a 20% true gross lease with no deductions but unfortunately put into production when oil prices were very low. The decline curve is harder to figure out, I know that the producers were pumping wells flat out when the price was over $100 a barrel but they may have choked back the production with smaller prices, we simply do not know.

If there is one bit of information I would love to have it would be to know how much of total production possible are they actually producing, or what choke rate the well is set to.

Either way, they are your minerals, do with them what you wish. I have 66 acres, man would I love to have your kind of acreage.

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