Replies to This Discussion

Permalink Reply by om28v on March 8, 2010 at 14:37

Jay, your property in the Humphries survey is right next to the St. Mary's Ironosa 1H that is currently being drilled. The Fox survey is northeast of it just a little. There is no completion data for the Ironosa, but sometimes it feels like we are the last to know about how good a well is. Keep in mind you are also very close to the Kardell well that Devon drilled with the highest initial production of any well as of yet in the entire Haynesville Shale. Are you in a area that is hot? Yes you are. Most here will tell you never ever sell your minerals, however, they are yours to do with as you see fit. I can say that of the maps I have seen as "sweetspots of the shale" you are in that area. There are several new wells just permitted close to your survey and things look better than just good. Good luck to you!

Permalink Reply by jay w on March 8, 2010 at 14:50

Thank you very much for your insight! I guess now I am optimistic. The land has been in the family and has always been kind of a joke because no one ever thought much of it. Perhaps it will pay off after all. Do you happen to know what price per acre would be considered market rate for royalty sale in that area?

Permalink Reply by om28v on March 8, 2010 at 15:00

I think you could see offers up to the 10k per acre range depending on what your terms are, but I also feel if you sit a week or two you will know what that Ironosa well is going to do. Remember selling your % royalties is close to the same thing as selling your minerals. Don't you wonder why they want them? I would think there is a very good reason.

Permalink Reply by reallyoldguy on March 8, 2010 at 15:08

True, om28v. HOWEVER, when you sell a % of your royalties, they expire with the lease. You can sell a % of your royaties allowing the buyer to assume some of your risk. No drilling; no loss. Sell your minerals and they are gone forever.

Permalink Reply by om28v on March 8, 2010 at 15:25

Sell a % of your royalties and get held by production and that agreement will not expire until your land is sucked dry. What's the difference. I do not see them letting this area go undrilled. I also can't see this area not producing. Why not get your full share of royalties unless you need a kidney now or something? AIMO.

Permalink Reply by reallyoldguy on March 8, 2010 at 15:00

Jay, are the looking to nuy a % of your royalties, or are they looking to buy your minerals/interest? Big difference. My guess is that you will continue getting these offers. Ive gotten 3 significant offers, in the past month, to buy my minerals. Are you in a hot area? We'd all like to be able to answer that with certainty. However, om28v is absolutely right. Certainly appears to be great interest in that area, right now. Best advice is just sit tight, as we all are, and let this thing play out. Id say. "FREEZE, DONT MOVE!"

Permalink Reply by jay w on March 8, 2010 at 15:06

Yes I agree that holding tight may be the best option. I just want to fill in all of the potential variables to be able to make an educated decision if and when a realistic choice is available. I really appreciate all the input. Is the St. Mary's Ironosa 1H well literally next door? Who is drilling it?

Permalink Reply by om28v on March 8, 2010 at 15:19

It is literally next door. From the map i think you could throw a rock and hit where it goes by the Humphries survey. You may even be a part of that well. I would ask South Western if I were you. St. Mary's is drilling the well.

Permalink Reply by jay w on March 8, 2010 at 15:09

reallyoldguy.... It seems a couple of the letters are looking to buy the "royalty rights" the others are more vague. I have not spoken to anyone that has sent the letters at this point because I wanted more insight on the location of the land, market rates and potential long term upside. Thanks for the help!

Permalink Reply by reallyoldguy on March 8, 2010 at 16:21

jay williams: Someone else will need to confirm this, but I THINK when someone is referring to buying your "royalty rights" they are referring to buying a portion of your royalties based on PRODUCING wells which, I dont think you have. Typically, these letters are from a bunch of Bozo's anyway.
Again, at this point, I think you'll be hard pressed to find anyone who "put their blessing" on you selling ANYTHING! It sure looks like big things are coming your way. I know its hard but it really is best to sit tight, and bite your nails, like we all are!

Permalink Reply by reallyoldguy on March 8, 2010 at 16:26

jay williams: now I KNOW everything I told you was true! Here's what my online psychic just sent me, ''Reallyoldguy, sweetheart, you're going to have to watch and let things happen.''
AHAHAHAHA!!!

Permalink Reply by DJG on March 8, 2010 at 18:00

You need to be REALLY careful that these are not offers to buy your minerals outright. Although the cash in hand might seem to be an attractive thing, really take a look at what a valuable asset you have currently with the minerals.

In Devon's 2009 year end investor's report, they were touting that they are expecting EUR's in the range of 6 BCF per well in the Greater Carthage area of Shelby & Panola Counties. San Augustine still needs to be proven further, however results from many wells currently drilling in SA area should start to paint a pretty interesting picture over the next 6 months to a year.

If Devon's prediction of 6 BCF per well holds true, then you and your family are going to be sitting pretty damn well in the long term with 581 acres in the play.

Perhaps you need the money now in order to pay down debt, keep the bookie's leg-breakers at bay, or just are itchin' for a new Cadillac - but don't lose site of just how valueable a resource you are holding with your minerals.

Here's a quick projection of what you could be looking at (per well) if Devon's assessment of 6 BCF holds up for the area:

Well Production: 6 BCF
Royalty Rate: 25%
Acreage in Unit: 581
Total Unit Acreage: 704 (current max in Texas - 640 acres + 10% variance = 704 acres)
---------------
Your return per well at $4.50 gas = $5,570,667
Your return per well at $5.00 gas = $6,189,630
Your return per well at $6.00 gas = $7,427,566
Your return per well at $7.00 gas = $8,665,552
(add another $1,237,936 per well for every $1.00 increase in price of NG)

So when you factor in that it would likely take 5 - 8 wells to properly drain that 704 acre unit, the final return on those 581 mineral acres is looking to be in the range of Between a low end of $27 million to a high end of $70 million plus.

Also consider that the area in Shelby/San Augustine does seem to sit in the prime region to have multiple pay zones with Haynesville, Bossier, Cotton Valley, James Lime, possibly Pettit and who knows what else might be lurking under the Haynesville in the Smackover and below so it could be highly concievable that your acreage would see quite a bit more action than the 5-8 wells.

That said it does seem that you would be well advised to wait it out a bit longer and hold on to the full royalty due to you once Southwestern Energy does get moving on producing your minerals.i

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