Value of Marcellus mineral rights? Bradford Cty, PA

Hello, I was seeking some information on the value of my mineral rights so I may further market them. Total acreage is plotted (10) and the well is in production with preliminary numbers from the operator at just under 8,000 mcf/day. Royalty is 161/2 %. There is a lease addendum for production costs are the responsibility of the operator. I'm not real sure what else I could add here but I may have a consideration for the property, a nice gentlemans farm that has been on the market since Sept, and now need to help a perspective buyer with an option so that I would still have funds to work with to relocate myself.

I've had the low ball offers that didn't consider the above avg percentage, let alone now as it stands according to MDN, it will be only second to the highest producing well in Bradford county, PA. There should be a way to put a decent value for a smart speculator. I once read on a landman's forum that a multiplier of 48-72 times a monthly royalty payment was a rule of thumb.....just don't know if that is correct and if there are buyers of rights at this price point.....any feedback would be greatly appreciated.

The well has been under production since late Sept, but I haven't received first check yet.

I also hope I am not breaking any of the forum rules here as I am new on here and the last thing I would want to do is break rules or offend anyone. Blessings! Joe

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Permalink Reply by Joe Shervinski on January 10, 2014 at 3:51pm

yeah, that is a real low offer Matthew. sorry to hear.

046aqwyftq0soPermalink Reply by 046aqwyftq0so on January 15, 2014 at 9:51am

how about you do everyone a favor and tell the truth, quit using disinformation to attempt to boost your land prices. 

046aqwyftq0soPermalink Reply by 046aqwyftq0so on January 15, 2014 at 9:50am

this isnt accurate, how bout you post the offer letter so everyone knows you arent lying. no one is paying 9,000 per acre for a 15% even in the "core core" area. If you have 19% you will see this as a MAX number. 

046aqwyftq0soPermalink Reply by 046aqwyftq0so on January 15, 2014 at 10:01am

Hey guy, north bradford is around 4,000 per acre for 12.5 percent use a proportion to figure out the correct number 12.5/4000 = your royalty/ X    and solve. 

South Bradford at most in the best spots (chk zone) is 5800-6000 for 12.5%, use the same proportion. a good way to do this is also run reserves on your on property for the size of the unit and proportional to your net interest in the unit. Use 2.50 per MCF this is a good average number for the area. 

REMEMBER!**** whoever is buying your minerals is now assuming the risk, you have to let them to try to make money too over time. If you sell partial interest they are now are partner and you are in the same boat and they are now working for the rest of the interest owners if its a company. 

Note: if your property is valuated at a conservative estimate of 10,000.00 per acre (assuming you have a 20% Royalty), a fair asking price is 8,000-9,000 per acre. no sense in buying minerals you cant break even on. Unless if the buyer is running some kind of ponzi scheme. 

Permalink Reply by J. Kinney LandRights on January 13, 2014 at 10:41am

Theres hundreds of ways to come up with "rules of thumb" and other calculations.  At the end of the day to determine value it is very simple ----  What is someone willing to pay?  

When it comes to dollars and cents there is not real calculation or rule of thumb.  It comes down to what can I put in my pocket for it.  

With that being said, there could be someone out there that will be willing to pay a lot more than someone else. 

If you're trying to predict what one could expect from their future royalties? It's very difficult even if you have a  lot of nearby data.  Decline curves are definite, each well is different (size, production, expenses, etc), 1 strip of clay can change a laterals production, and some companies drill better wells than others. 

Wish you the best!

Permalink Reply by Barbara on January 13, 2014 at 11:35am

Your response is very helpful, thank you.  Can you explain what you mean about "1 strip of clay can change a laterals production"?  We are in a well that went on line in July in Bradford County/Towanda area.  It has not been a good producer like so many it seems lately.  I was wondering if you could answer a couple of questions for me.  Could the low production be due to the gas company some how holding back the gas flow (please excuse my layman's terms) and creating a low flow?  Also, this well was approved for 6 legs, do they ever go back and drill another leg on wells that are not producing very well?  Thank you, Barbara

Permalink Reply by J. Kinney LandRights on January 13, 2014 at 12:08pm

Barbara,

  My statement about the strip of clay comes from a close family friend (part owner of Trans Energy) that drills horizontal Marcellus wells in central WV.  As far as other wells throughout OH, PA, and WV I'm not certain they run into clay but I've heard it before.  When they frack the shale (cracks usually go 300 feet or so) and the cracks were to hit a strip of clay it kills the crack.  The examples I've heard is that a strip of clay could fluctuate throughout the shale and when the fracking takes place those cracks stop at the clay when it bends back towards the bore.  So instead of having cracks run 300 feet and capture that amount of product, they only ran to the clay (maybe 100 ft) and left a lot of product; obviously less total production for the well. 

Yes. Gas companies can "turn" down the production. This would be done by choking back the well.  By choking the well you can keep the flow low but the pressure would increase. At times they choke a well to get the pressure where they need it. 

If a site is approved for 6 then my feelings are they will ultimately come back and drill the remainder legs.  Could be tomorrow, could be 10 years from now.  I have clients in SW PA thats in the same situation.  One has a well drilled and tied to sales line but has been waiting for almost 2 years for the company to get back and drill another leg (8 total laterals approved for his site).  Seems that the company is in no rush because the unit is now HBP'd.   Reasons you see them drill one and leave - 1. no pipeline yet and want to hold the leaseholds. 2. limited resources and want to confirm other dirt elsewhere so they know where to target. 3. creates a "reserve"; if the production is good they now have it on their books and can brag to investors the potential once all 6 legs are drilled. 

Each of these companies have short term and long term plans. I've had the privilege of getting a lot of insight and each company seems to be different.  

Permalink Reply by Barbara on January 14, 2014 at 2:56pm

Thank you so much for the detailed answers.  This is very interesting and really helped me to have a better understanding of what to expect.  Thank you again.

Permalink Reply by Joe Shervinski on January 13, 2014 at 11:56am

Agreed on the first statement, only worth what an investor would pay, however as the original lease agreements went, the real values of Pa leases are subject to much scrutiny because of the very low per acre payments to lease to begin with, so there are very low offers for the mineral rights too. I think many are from those who also own leases to dry or low producing wells. So even when offered mineral rights with above avg,  they are just trying to avg their losses. Though I do see a couple of sites who are willing to make offers with consideration of the first few royalty payments

Understood on predictability on any well, but there still is EUR's and methods of calculating/predicting.....which as in any other investment, there are no guarantees.

I do appreciate the feedback and you have put it into a perspective. Thank you for the well wishes and back to you!


Blessings

Permalink Reply by J. Kinney LandRights on January 13, 2014 at 12:17pm

I agree Joe.  It's very tough and each investor that I've met seems to have either their own "calculations" or some call it more of an art predicting the rate of return on minerals. 

I also agree on the PA leases. Brings in the same concern on minerals with $5/acre bonuses or even HBP'd minerals.   Selling HBP minerals is literally a guess; both buyer and seller.  No ticking clock, no future extension payment or renewal to offset the investment if drilling doesn't happen soon; just the sheer guess of when it will be drilled and potential based on nearby production, if any. 

I try to stay away from voicing my opinion on selling minerals.  When asked what is best I simply say what is best for your family? Fair money today or great potentials later on?  

There's a million reasons to sell and not to sell.   I've assisted in those transactions and ask "why did you sell?"  and other than "we needed the money" I get "we would have NEVER imagined only the minerals on a farm we bought 50 years ago for $200/acre would pay us this kind of money and nothing on our farm changes".  

Take care.

Permalink Reply by Joe Shervinski on January 13, 2014 at 2:35pm

The only thing tough about it is getting past all the bottom fishers. Understanding the dynamics of a gas well production can't be any worse than trying to understand a prospectus from a mutual fund. It's that too often these rights have been available by people who didn't understand what they had or were in some dire need.

I get what you are saying regarding a fair payment today vs great potentials later. This seems to be the reality of it, as there is a lack of precedent set, or a lack of proper marketing. Surely there is risks, but that is the difference between risks and gambling, as it is no longer gambling when you calculate the risks, and what is left is what is fair for both parties. If the lifetime of a well is 15 years give or take, I'm not seeing offers paying more than what's equal to the first18 mos of royalties. Hence the rule of thumb of 48-72, which this from a landman's forum, not disputing the degree of expertise. 

It's hard to find an investment that pays above 6% that isn't labeled high risk, and certainly anything that pays 10% is nothing but junk bonds or similar.

Certainly there is a stigma in this industry and the land owner/mineral owner is left holding the short stick and not being paid fair. I've had a local offer me a multiplier of 12 times my estimated monthly royalties and tell me all he has to do to keep his income under the 49% tax bracket. Go figure!  It's not dire for me if I sell or not, just gives me options.....but not going to sell on the cheap. I guess if being stuck with an above avg producing well with above avg royalty %, life is not that bad. I'd love to buy you a lunch if you were in the area sometime and thank you for your feedback. Blessings

Permalink Reply by J. Kinney LandRights on January 13, 2014 at 3:37pm

Joe,

  I enjoy your points and perspectives.  I sent you a friend request so we can expand upon this chat.  

  I too appreciate your comments and look forward discussing.

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