Replies to This Discussion

Permalink Reply by kittycatmama on September 2, 2016 at 4:06

I should add (couldn't find the edit button) that he had $200 from the other section with 2 ac. for the year

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Permalink Reply by Skip Peel - Mineral Consultant on September 2, 2016 at 5:12

There are many formulas. It's generally tough to find buyers for mineral interests this small.  Without looking closely at the specifics of remaining reserves and potential for additional future wells, the best estimate would be a multiple of most recent royalty revenue in a range.  I'm unsure how this approach would work for production on a yearly as opposed to a monthly basis.  As an example the two acres that had an annual revenue of $78 would be an averaged  monthly rate of $6.50.  Using a 50 month multiple that would value those two acres at $325.  At that price a sale has little benefit for the seller but is small enough that a buyer might forgo the expense of a title review and rely on the fact that the company paying the royalty has done reasonable due diligence and the title is clean.  That is only for very small interests as the pay decks of operators are full of errors and the payment of royalty is no guarantee of clean title.

The other 2 acres would be valued at $833 using the above example.

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Permalink Reply by kittycatmama on September 2, 2016 at 10:44

thank you Skip. I would assume that someday multiple wells will go in these areas, but I also know that is "blue sky" and hard to value. This particular individual needs money now and was hoping it would be worth $4-5000.

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Permalink Reply by Skip Peel - Mineral Consultant on September 2, 2016 at 11:30

Once there are alt well applicaltions or new wells permitted including the units containing the mineral interest $4-5000 is not unreasonable for 4 acres.

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Permalink Reply by John Smith on September 3, 2016 at 4:19

Kitty,

Can you send me the section township and range of the property as well as what company owns the lease.

I will send you an add friend request.

Thanks,

John

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Permalink Reply by kittycatmama on September 3, 2016 at 11:45

There are 3 parcels: one batch in sec. 8 of 16n14w, small amt. in sec. 5 of 16/14, and some in sec. 34 of 17/14

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Permalink Reply by John Smith on September 5, 2016 at 3:05

Thank you for the information... What company is he leased with and does that company have all the sections leased?

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Permalink Reply by Skip Peel - Mineral Consultant on September 5, 2016 at 3:14

Those sections are HBP Chesapeake units.  Decent rock, not great.  Most of the reserves are intact as there are only the original unit wells producing at this time.  The one unknown as to future development is that these units are urban, inside the city limits, and likely will be low priority for new drills.  Chesapeake will likely ride them down as long as they are allowed to do so.

I don't have a problem with a $1000/acre value as long as a buyer realizes that it may well be a few years before additional wells are drilled.  The other side of that coin may be improved natural gas prices above $3. The only other potential change in this ownership interest, outside of possible title defects, lies with the surveys performed when cross unit lateral wells are drilled.

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Permalink Reply by John Smith on September 5, 2016 at 3:45

Thanks Skip... I always like your analysis... I am out of town and limited web access... When it was mentioned initially South Caddo.... I thought it was further South... Not city limits... Thanks

Permalink Reply by Skip Peel - Mineral Consultant on September 5, 2016 at 3:51

Basically the majority of 17N - 14W is urban.  The northern half of 16N -14W is mostly urban.  There are small parcels that are not currently annexed into the city limits but they are relatively small and isolated.  I accounted for that fact before stating my opinion that $1000/acre is a reasonable purchase price.

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Permalink Reply by kittycatmama on September 5, 2016 at 4:01

thanks to all for the dialogue. My elderly friend is getting letters in the mail to sell his minerals. A lot of these buyers are from other areas of the country and will offer a small amount. I wanted him to be informed before he sells. Will print this up for him.

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Permalink Reply by Skip Peel - Mineral Consultant on September 5, 2016 at 4:16

Most of those letters are "fishing" for interested sellers and have no underlying research regarding the specifics of the minerals.  Most companies perform very limited due diligence on the front end.  They will look more closely at the minerals once they think they have an interested seller.  Excepting dire financial need that could be address with $4000 I would hold on to the minerals as they may have improved value in the not too distant future.  CHK or a successor operator will have to eventually drill to maintain the underlying leases.  If I had to guess, 2 to 3 years.

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