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 Jeffrey Beunier on January 7, 2015 at 11:46am

In reference to the 45 years longer than reality and a nice annuity, you are right - as it's a declining annuity, as you have probably seen on many of the posts on GoMarcellus, wells come on rather strongly, but unless the operator is using a restricted choke program (see Rice Energy's discussion on how they are producing the Big Foot well and the Blue Thunder wells), you would see declining production rates from the first month.  After a year, production usually drops anywhere from 50% to 90%, depending on the specific well.  The decline rates, start to become more shallow as time goes on - Google "hyperbolic decline curve".  I've seen people really surprised at how quickly their checks decrease from month to month.  Add in the normally lower prices during the summer months or shoulder months, and the 'annuity stream' can be quite volatile and depressing.

Permalink Reply by Jeffrey Beunier on January 7, 2015 at 11:55am

Frank your attorney should take some engineering courses before he speaks about time to payout - etc.  He may be right on some things, but the production profiles for Harrison are quite different that for Belmont or Monroe  He gave you bad advice on what to expect as there won't be 'huge amounts' for 50 years - I guess it depends on his perspective of what 'huge' looks like.

By nature, well production declines over time, and therefore your royalty checks will decline over time (holding price assumptions constant).  The following link highlights decline curves to illustrate the point.

http://petrogoodies.com/modified-hyperbolic-decline-curve/

In addition to the natural decline of production, there is a finite amount of gas that a reservoir can hold, and like a can of soda, once you open it, the gas comes out and eventually the "soda" goes flat requiring mechanical means to extract it (compression for nat gas, pumps for oil, straws for soda). 

As Dexter stated, that sounds like 45 years longer than reality.

EQT Corp, is kind enough to show the production profiles for Marcellus wells in their investor section, the link below will open an excel spreadsheet that may help illustrate the way production rates decline over time. They show (for the SW PA Marcellus) that their anticipated decline rate is 75% in year 1, in other words production at month 12 is 75% lower than the first month.

http://ir.eqt.com/sites/eqt.investorhq.businesswire.com/files/doc_l...

Maybe your attorney should stick to practicing law.

Permalink Reply by Philip Brutz on January 7, 2015 at 12:15pm

Frank, the ODNR oil and gas well viewer is an easy way to keep track of drilling in your area:

https://gis.ohiodnr.gov/website/dog/oilgasviewer/

Permalink Reply by Puzzled on January 7, 2015 at 12:58pm

So if I have one well drilled in a unit  I would get$ 57.50  per month per acre for 30 years?

Using that I would receive a total of  $2,070,000  for the 30 year life of the well

If I sell the minerals for 20 k per acre I would get 2  million pretax immediately.

Obviously a lot les money over time but also a lot less risk.

Too bad my crystal ball is in the shop.

Permalink Reply by Jeffrey Beunier on January 7, 2015 at 1:24pm
Ed

Not all leases are the same, royalties vary widely, as do other terms like net versus gross. Also, referencing AR, I saw a lease where not only did they charge post production costs, but they also had the abort to charge depreciation for their pipelines - I'm not sure how you could calculate what you payment would be on that.

Furthermore, relating to spacing, the entire play will not be drilled on 400' spacing - look at the other plays throughout the country as analogies - depending in the product (oil, gas, wet gas, etc) and the depth and completion types, as well as well design (lateral length), spacing will vary widely. The reality is that if they can crack the code in the oil window to get it to produce, those will probably be the tightest spacing you will see - could be even less than 400', the over pressured dry gas window may vary widely and over time, as completion techniques are perfected, a standard for each area will become apparent.

Some operators are modeling 80 acre spacing while others are at over 200 acres spacing - all depends on where you are located.

So in summary, $15k per acre may prove to be cheap in some areas depending on a large number of factors, and in other areas it might be widely overstating the value.

It all comes down to who, what, where, when and who.. Yea that's 2 "who's" as much depends on who is drilling and operating your wells.
Permalink Reply by Philip Brutz on January 7, 2015 at 3:16pm

Before you sell part of your mineral rights and become partners with a stranger, make sure that you understand how they could force you to sell them the remainder of your mineral rights using a legal "Partition"  

http://en.wikipedia.org/wiki/Partition_%28law%29

 

"A partition is a term used in the law of real property to describe an act, by a court order or otherwise, to divide up aconcurrent estate into separate portions representing the proportionate interests of the tenants. Under the common law, any tenant who owns an undivided concurrent interest in land can seek such a division. In some cases, the parties agree to a specific division of the land; if they are unable to do so, the court will determine an appropriate division. A sole owner, or several owners, of a piece of land may partition its/their land by entering a Deed poll (sometimes referred to as "carving out").

There are three kinds of partition which can be awarded by court: partition in kind, partition by allotment, and partition by sale. A partition in kind is a division of the property itself among the co-owners. Partition in kind is a default method of property partition.[1] In a partition by allotment, which is not available in all jurisdictions, the court awards full ownership of the land to a single owner or subset of owners, and orders them to pay the person or persons divested of ownership for the interest awarded. Partition by sale constitutes a forced sale of the land, followed by division of the profits thus realized among the tenants. Generally, the court is supposed to order a partition sale only if the land cannot be physically divided, although this determination often rests on whether the economic value of the divided pieces is less in the aggregate than the value of the parcel as a single piece. See Delfino v. Vealencis, 436 A.2d 27 (Conn. 1980).

A provision in a deed completely prohibiting partition will not be given effect, but courts will enforce a provision that temporarily restricts partition, as long as the restriction is reasonable."

Permalink Reply by Jarrad Stephens on January 9, 2015 at 3:58pm

Would think that partition would only apply when there is a division of assets? Example you release a portion of your mineral interest to a company to retain future royalties at a later date. Example: 6.25% interest is sold to a mineral company and both owners become "tenants in common". The new joint owner says that they want out and can force a sale on the property. However, if an owner was to release all of his interests in one parcel of land and if that owner had multiple parcels there would be no consideration of contiguous parcels owned by the land owner solely. I agree I would not try to sale just a portion if your going to sale some make sure that you get rid of it all or work with the proper legal counsel to make sure there will be no problems down the road. I guess it really depends on that persons stake and if it makes sense to get rid of a small piece of the pie and wait for better times down the road.

Permalink Reply by Mick maag on January 8, 2015 at 4:33pm

so does anyone know what the percentage of people who get leased actually get drilled..  i heard it was 6%?

Permalink Reply by Philip Brutz on January 8, 2015 at 4:44pm

In what time frame?

Permalink Reply by Ryan A Bettis on January 8, 2015 at 10:53pm

Flat Iron is no longer buying minerals, I am president of Green Minerals LLC and we work with several end buyers who have made offers up to 20k per acre for certain areas of Monroe and Belmont. These offers have definitely decreased since oil and gas prices have dropped but there is still great offers to be made. Feel free to check out our website greenmineralsllc.com or email me at greenmineralsllc@gmail.com.

Permalink Reply by Puzzled on January 9, 2015 at 2:57pm

IF is the biggest word in the English language

Permalink Reply by Ryan N Nyardy on January 9, 2015 at 4:17pm

I'd love to hear from some landowners (directly, not indirectly) who could support this figure... $206,532 per acre?? Seems a bit high.

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