New tactic by gas companies?

A coworker has 270 acres 25 miles west of Wheeling WV.  He's in the wet gas region of the Marcellus shale.  Anyway, his lease is going to runout in 10 months without activity.  He got a call from his lease holder, name unknown to me, offering him $14K per acre to buy his whole royalty out.  He said maybe for $30K an acre he'd think about it.  Apparently the drilling companies are taking advantage of the fact that the Marcellus region is populated with a lot of old folks who need money now rather that wait.  I don't know if this is a new tactic or not.  My coworker is only 35 years old so he is not inclined to take the deal but I bet there's plenty of folks who will.

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Permalink Reply by Schnoozie on January 27, 2012 at 6:19am

If this story is true, and once again, I seriously doubt it.

 

Your co-worker friend, who was offered $14,000.00 U.S. Dollars per acre, or (clearing throat)....and did not take it.

Is a fool....

Permalink Reply by Nelson Roe on January 27, 2012 at 7:35am

I disagree... As the 14,000 per acre would be for a buyout of the royalty interest not leasing the acreage (and I have heard of somewhat similar offers around here).  This would look good up front but, I would say that if/when a well was drilled & started producing on his land, then he would recoupe that amount in a short period of time... Plus some.  Especially if all of his 270 acres were included in the unit.  With him being only 35, I probably would not go for it at that price either.

Permalink Reply by Mike h on January 27, 2012 at 7:45am

That doesn't sound like a very attractive offer to me. I did a quick net present value calculation for estimated royalties for my property and I wouldn't spend 2 seconds on that offer. I don't know where signing bonuses are in his area but let's assume $5k an acre or better if he is wet gas. So they want to buy out his interest for roughly 3 times the potential signing bonus, not even considering potential royalties. DOH!

Permalink Reply by Paul Martinelli on January 27, 2012 at 7:45am

at 14k....I be tempted....4M up front!

Permalink Reply by craig on January 27, 2012 at 7:47am

Ahhh, I wouldn't rush judgement Schnoozie. You do understand that the offer was for All FUTURE royalties, a one time payment, forever. 

I suspect this to be true as a gentlemen(in his 70's) in my area with 400+ acres was offered similar money for his future royalties....and CHK was the one offering. He turned it down.

I see Nelson posted as well, so I'll leave it at that!

Permalink Reply by jb379 on January 27, 2012 at 8:08am

Maybe not a fool, however, it sure would take a lot of production to get to that figure.  And oh yes, what is that thing called that happens from time to time...can you say, dry hole?  Hard to collect royalties from those buggers;)

Permalink Reply by Schnoozie on January 27, 2012 at 10:05am

My point exactly with the dry hole and all the risk involved with future prices.

If you take away 1/3 for taxes, you still have an enormous pile left. Anyone wants to give me that money for my 135Ac. in Mercer they can have it. Today.... and the land also.

Ill split my time between my new sensable home in Grove City and Hilton head and call it a day.

Permalink Reply by Paul Martinelli on January 27, 2012 at 10:13am

sold!

 

Groovy city.....geez you can do better that that.

Permalink Reply by Schnoozie on January 27, 2012 at 10:22am

It's very quiet in Grove City. Quiet = good.

So are the right out of the bay Oysters and tangy Bloody Mary's at the Salty Dog.

Now I am hungry.

Permalink Reply by bo boboski on January 27, 2012 at 8:48am

They a well will lose 80% of it's production ,slowly but surely over the life of a well. So the $3000. per acre royalties the 1st  year,could be only be $600. pr mo. 20 years from now. So $14,000. pr ac. now may not be bad.Just the fact that they could offer this tells me there may be alot more oil&gas down there than we think.

3uq96odaochmjPermalink Reply by 3uq96odaochmj on January 27, 2012 at 8:55am

3.78 Million??????  even after paying 35% in taxes, he's left with 2.457 Million.

 

Buy gold and invest in stock, bonds, etc. cause even with a million dollars, you're buying volume.

 

And at 35 years old - he could probably retire at age 40 (easily).

 

 

Permalink Reply by George Brown on January 27, 2012 at 3:54pm

Yes, I think I'd take the money and run.

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