High offers to buy minerals

I have been hearing of companys offering $12000, $13000 even $15000/ acre to buy mineral rights. So far I haven't been able to find out who is making these offers. If you've received an offer in this range could you please tell me who made it? Thanks.

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Permalink Reply by pat on June 19, 2014 at 9:36am

just remember location, location, location. take a 80,000 home in youngstown and you put that same house on the shore out at lake milton and youll get 300,000 for it.

Permalink Reply by Dexter Green on June 19, 2014 at 10:19am

That doesn't answer the legitimate questions posed.  How did you model out the per acre value?  What was your baseline IP?  What was the first year's decline curve?  Second year?  When did terminal decline hit?  Did you use price inflators for the commodities or did you use strip pricing?  How many years did you have production going for?  What was the LOR?  How many wells?  What was the unit size?  Did you use a standard PV10 or did you use a lower discount rate?  

Permalink Reply by pat on June 19, 2014 at 11:54am

dexter, you sure sound like a  landman trying to drive the price down. to answer your question i surveyed about a dozen land owners that are receiving royalties.on what to expect. and yes i did take the decline into account. i based production on 20 to 30 year well. why would i even consider 15,000 an acre when i get half that for just re-leasing it again. if that was the case if thats all its worth for selling it, please dont drill i want that bonus money every 5 years instead. my figures were 600-1000 month for the first two years the with the decline at least 300-500 a month per acre. then there the drill fee,the spud fee and the lateral fee, just in these fees are almost 50,000. and i came up with 160,000 per acre.and thats what almost what our landman told us that is a personal friend. plus we had a good attorney that drew our lease up, 20% royalties and no production cost. plus i have my neighbors 200 acres box in where they have to drill on my property because all the drilling here is drill north west and multiple layer fracking..

Permalink Reply by Dexter Green on June 19, 2014 at 1:51pm

"dexter, you sure sound like a  landman trying to drive the price down."

Yeah, being skeptical always means there's an agenda.

"i based production on 20 to 30 year well."

That's flawed for any number of reasons, not the least of which being that a 30 year well is producing for 50% longer than a 20 year well.  That's a glaring accounting issue.  I've never built a model that has gone longer than 20 years because we have no evidence to suggest that we should expect a longer life span than that.  

"my figures were 600-1000 month for the first two years the with the decline at least 300-500 a month per acre."

When I asked you if you modeled in a decline what I meant was did you model in a actual, realistic decline that mimics how these wells behave.  Assuming the royalty for the middle of the second year is even close to that of the middle of the first year is wholly inaccurate.  Look at an Antero presentation and see what the decline was from IP to the end of the first month.  It was almost 50% before they instituted a choke management plan.  I did the math and plugged in an arbitrary IP.  Month one produced 10x the gas that was produced in month 24.  Your numbers are simply not a reality for almost all landowners.  For the few who sit in the core of the core they'll see some pretty amazing money coming their way.  For the rest of the people they will see great money.  But telling people to expect $160,000 per acre is lunacy.  Expecting a buyer to pay you the full market value for undeveloped land goes to the bigger picture of not understanding risk.  

Permalink Reply by The Rooster on June 19, 2014 at 6:10pm

Dexter

what do you feel an acre is worth? lets say its in a good location, not the best but good. give us a number on a 12.5% lease and a 20%

Permalink Reply by Dexter Green on June 20, 2014 at 3:02am

"Dexter

what do you feel an acre is worth? lets say its in a good location, not the best but good. give us a number on a 12.5% lease and a 20%"

I don't fell comfortable giving out a round number simply because there are far too many unknown inputs.  Per acre there's probably nobody who will make more money than the people whose land is in MHR's monster (Stadler?) unit.  I mean, 16 wells is going to produce mind-blowing LOR.  But to try to put out a number without any context would be disingenuous at best.  Sorry I can't answer your question.

046aqwyftq0soPermalink Reply by 046aqwyftq0so on January 6, 2015 at 5:46am
Yes I may pay 10k or 15k per acre, but its not about whats under the ground its WHEN you see your investment back. If its unitized producing and I know I can see my money back in under 10 years, I don't mind paying 15,000 per acre for a 20% Royalty in the right part of the Utica. You have to make comparisons between the mineral markets, and working interest markets. Working interest you make more money but its riskier and you have to continually put up more money. Also the Working interest market is full of people who know what they are doing and what they are talking about so the market is easier to transact and easier to make money, unfortunately like the mineral market land is finite. The mineral market is full of people who are being told the wrong stuff everyday, who don't have an education in hydrocarbon geology, they do not consider type curves, they do not consider changing commodities prices, who do not consider PRESENT VALUE equations, and they do not make economic comparisons between their rock and the rock in other plays, and the current mineral markets for other plays. For example in the Permian or South Texas, the market is full of mineral owners who know what they are doing, who know the trade offs between selling now and waiting, and are realistic, these people are easier to transact with and rarely see over 10,000 per acre for a 25% Royalty (DOUBLE THE AVG ROYALTY IN APPALACHIA!!). I am personally buying in plays that have a IRR that overwhelms the Utica and Marcellus but they are a 1/4 of the price! The Appalachian market is the most overinflated, unrealistic, hardest to do business in because most of the landowners have no experience with this business, they are constantly fed bullshit by people who dont know what they are talking about, and theres so many scare tactics involved, it grosses me out, as well as people like this trying to post on go marcellus ridiculous stuff about "40k per acre or 160k per acre" just so they can try to get their land from 12k to 13k. The landowners who do have a background in the oil business, are actually the EASIEST to do business with because they are realistic, and they realize along with me, the guy spending money, that minerals are a craps shoot. Now, that being said, I still like having gas in my portfolio and its still somewhat economical to pay 10-15k per acre in the best of situations, but unless you have 6 wells shut in waiting for pipeline and are a 100% unitized in the best leg of the Utica, you will NEVER EVER EVER EVER EVER EVER EVER see over 14-15k per acre, and only in certain conditions will you see that in the first place. The human factor of development, midstream situations, operators budgets, leasehold positions, and fluctuating commodities prices are the driving factor of the market, not Bo and Pat up here trying to drive their own land values up, sorry guys but the buyers know a lot more about this than you do. Land with a bad well producing now will always be worth more than awesome land that will be producing in 10 or 20 years. Bc you see revenue NOW. If you don't have strong revenue on the good side of a type curve, you can forget over 10,000.00 per acre. Scaring these poor people with bad information will only prevent them from making a good deal that will benefit both parties. I feel sorry for the people who listen to this stuff, and I will apologize on your behalf. Sorry guys, but dont listen to these people, they don't have your best interest in mind.

*Also remember when you sell half your interest or give an executive right to a mineral company, you just gained a partner with a legal and accounting team who watch every penny of royalties and bonuses and make sure they dont get screwed, and in turn you dont get screwed. So honestly they are giving you ungodly amounts of money, you see royalties in the long run, and you have a multimillion dollar staff watching over your property. Selling is smart. The smartest landowners sell half and wait.
Permalink Reply by bo boboski on June 19, 2014 at 9:29pm

what your oil & gas is "WORTH", and what someone will pay you for em,is quite a bit different.  At this point in the play,sell only if you need the $$$

Permalink Reply by The Rooster on June 20, 2014 at 3:56am

I guess the biggest problem I have with holding on to them is how long till u get in a unit nobody knows. people could be using a large chunk of money buying rentals and making good money with that money now. not to mention the 1031 tax advantage. if we all only knew the date of our first royalty check.

Permalink Reply by Dexter Green on June 20, 2014 at 5:02am

And that's why you sell at a discount.  You are engaging in risk-off behavior and the buyer is risk-on.  

Permalink Reply by Paul Martinelli on September 4, 2014 at 7:27am

So   a couple months have passed............

What are the offers being made now in the various counties:

Permalink Reply by Robert Matthews on September 4, 2014 at 11:34am
I just received a letter from Strategic Land Partners LLC offering $2,250.00 to $6,250.00 to buy my minerals. Jefferson county Ohio. I think that is a low offer.

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