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Comment by David Hunt on September 20, 2012 at 11:33am

I was at the Hamilton sale. Break down went like this. 72 or 74 acres I don't remember.  Property $175,000 Plus 10% buyers fee $192,500, Timber $100,000 Plus 10% buyers fee $110,000, ogms unleased $3,000 Per acre plus 10% buyers fee $3,300 per acre  

Comment by Bob Jenness on September 19, 2012 at 4:49pm

Timothy,

The $3400 comment was made in passing during the bidding, and you know how fast auctioneers talk.  My impression was that it was o&g only, but I can't be sure.  I have it on my to-do to try to find someone who has more firsthand knowledge on this one, but I'm pretty busy with "surface" items right now.  Unless you really need the money right now, any sale should be after the Cochranton well is known.  Does anybody reading this have better info on this one?

Comment by Sam Douglass on September 18, 2012 at 4:12pm

With the shales, having a well drilled on "your" property is not a benefit since you will be part of a pool/unit splitting the take with everyone else in the unit.  Additional compensation should be available to the property owner that bears the burden of having a factory put on 5 acres or so of his property.  And the units are large enough that one or two wells drilled to hold the lease beyond the primary term may not be particularly rewarding if the remainder of the wells are delayed indefinitely.

Comment by timothy j anthony on September 18, 2012 at 3:53pm

hey bob, do u know if the 3400 an acre unleased parcel was land plus ogms or just omgs.. i recieved a offer of 74,250 today for a 27.5 acre parcel i have for sale in crawford co. its leased but not hbp, and the lease is up in 12 months. i told him i would sell for 3 thou an acre. smart??? im not sure :)

 

Comment by Sam Douglass on September 18, 2012 at 3:41pm

An interesting exercise.  With the properties effectively leased, it is not going to attract the pocketbooks of operators.  Royalty buyers must gamble   some and bids appeared based on modest return from current shallow wells.  Royalties from the deep shales is pretty speculative from a time standpoint.  With only one well drilled in Crawford County now it may be years before there is significant production from the well in question.   a dollar you receive 20 years from now is close to being worthless today.  That is the reason the bonus is so important when leasing land not currently under lease.

Comment by Bob Jenness on September 17, 2012 at 4:35pm

Value of Oil and Gas rights in case you sell your property in Crawford County - one data point...

I attended an estate auction in Linesville today.  Part of my interest was to see how or if mineral rights values are showing up in real estate sales, and I got some useful information...

The real estate was divided into 4 parcels, roughly characterized as the residential part (house and 13.5 acres, with free gas from a producing well), the agricultural part (76.5 acres), Oil and Gas rights (fully leased, consistent but modest production of gas and a little oil, drilled by Mitchell Energy, now assigned to Quail Energy) to the 13.5 acres, and similar mineral rights to the 76.5 acres.  The auction was structured to allow bidding on any parcel or any desired combination of parcels, with status kept on big whiteboards as the auction proceeded.  There was no interest in bidding on just the 2 mineral rights parcels, although at one point it was clear that a single bidder was bidding on both of them and nothing else.

The bidders for the individual land parcels at one point tried to keep the rights with the land, but at the end of the day, only one land parcel (the residential) stayed "with minerals".  The main contest was between a single bidder who wanted the whole thing, and 3 bidders who wanted the parts. (but note that there could be a family connection between the 2 mineral rights owners - I just don't know enough folks here to pick up on that one.)

At the end of the day, it went in the books like this:

13.5 Acres land and buildings -          $185,000 plus buyers premium, total $203,500

76.5 Acres of producing tillable land - $215,000 plus buyers premium, total $236,500

Mineral Rights on 13.5 Acres -           $13,000 plus buyers premium, total   $ 14,300 Sold to same bidder as the 13.5 acres of land

Mineral Rights on 76.5 Acres -           $31,500 plus buyers premium, total   $ 34,650

Grand total sale price                       $444,500  plus buyers premium, total  $488,950

Highest bid for the whole set             $444,000

Note that the royalty rate on the old leases is 12.5%, and the mineral rights buyer has no expectation of any bonus payments unless the existing wells go dry and are plugged (very unlikely).  It was mentioned that the royalty payments are about $1000 per year, so we could look at the total mineral rights ($48,950) as an investment with a 2% return and a possible large future horizontal royalty upside - about comparable to putting it in the bank. On the other hand the mineral rights for the 76.5 acres would be a slightly better investment at 2.5%. 

I guess we could infer that the mineral rights values in this market sample were between $458 and $1059 per acre.  I suspect that the wide range had to do with how the bidding played out - I think the small mineral rights parcel was bid up to battle the whole set buyer more than the larger one, so I'd net it out at $600 to $750 estimated overall average.

It was mentioned by the auctioneer that a recent auction in Conneaut Lake included an unleased mineral rights parcel, which either went for or subsequently received $3400 per acre.  I suspect this was the Hamilton property.

This is the first sale I've seen that could actually be said to put a "comp"arable value on oil and gas rights.  I would expect the value to increase over time, perhaps after the Lippert well results are known.  I would also expect more quiet, but well funded rights buyers to be showing up in these parts.  Betcha we can't yet take it to the bank for a loan, though:-)

Comment by rex roae on September 17, 2012 at 2:27pm

Don't have 640.  Range is currently holding by production 131 acres of ours with a couple old wells and we want to add our adjacent 51 acres.  Also have 46 acres in East Mead bordering McNamara if you know who they are.

Royalty is 15% which is below the current standard of 18-19% but seeing what Chesapeake and some other companies are doing,  you probably going to get nailed with deductions even if you signed a no deduction clause(see Sam Douglas post for reference).

For us, the deal makes sense and the chances of Range actually drilling a well on either property in the next few years is pretty remote.  Even if they do, I'll gladly accept the royalty checks on a shale well in lieu of additional bonus payments.   From what I've read, the royalty payments over the life of a shale well are worth roughly 10x the bonus payments so I don't see how a person could be upset if it they were drilled on before getting their full bonus payments.

Comment by j. rick on September 17, 2012 at 2:03pm

oh i didnt realize you had a production unit of 640 acres. i wish ya the best i would sign to. make sure you get the well pad payment. what kind of royalty percentage are you lookin at?

Comment by rex roae on September 17, 2012 at 1:58pm

I have an attorney looking at the Range lease.  He added about 40 addendums so we'll see what Range says.

We're going for a Depth Restriction clause so they can't hold the land with a shallow well.  If Range agrees to our addendums, we're signing.  I could care less if I only get paid one year if they drill a shale well on my property.  

Comment by j. rick on September 17, 2012 at 1:51pm

I was offered 2500 then up to 3750 a week later. by range but its over 5yrs the lease is junk and you will not see all 5yrs money because they will use the held by production as a reason not to pay. now i have 2 neighbors that i know of that signed a lease with range for 1500 an acre and still havent been paid the first year.  people better wake up and get some kind of legal representation because the hard headed ness way is gonna get you screwed for sure. and this isnt b.s.  i think all the people who think their friend works for range. think again!

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