Estimating Value of DeSoto Mineral Rights Based On Purchase Offer

In 2008, my sister and I each inherited 10 acres of mineral rights from our father – S: 32, T: 12N, R: 14W (Spider Field).

Recently I received an offer to purchase my 10 acres for $97,500. My sister received the same offer for hers.

We also recently inherited another 10 acres each from our mother and are in the process of transferring ownership.

Given that a company is, in effect, offering $195,000 ($97,500 X 2) for these 20 acres, obviously they see it worth far more to make a profit. We are also receiving royalties from Comstock on a cross-unit well. 

Having said that:

1. What would be a fair estimate as to the true value of the property relevant to the offer we've received? Double? Triple? More? 

2. In May we received a Pre-Application Notice, and in June a Hearing Application to Comstock's intentions to drill 5 new cross unit wells, 4 of which extend into our property. Is there a common timeline as to when they'd start drilling relevant to these notices?

We don't intend to sell, by the way. Thanks in advance for any wisdom you can impart!

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Bunch of variables in the equation.  NG price, number of wells, vintage of wells, operator deducts, royalty amount, etc.  I would not sell anything unless you have an emergency need.  Even then, don't sell!  To get a FMV, you would need an appraisal.  Any competent reservoir engineer can do that for you.  

Thank you, that's good to know!

Jimmy, you didn't mention the royalty fraction in the leases covering the 20 acres.  Mineral buyers use the concept of royalty acres in order to factor in the royalty.  Obviously ten acres at a one fifth royalty is worth less than the ten acres next door at a quarter royalty.  What buyers are looking to acquire are future wells.  32-12N-14W has both Haynesville and Bossier reserves.  The current most common spacing is six wells per governmental section.  So you have twelve total well "slots" less whatever is already drilled, if any.  Buyers prioritize mineral acquisitions that have new wells in the pipeline.  Those five alternate unit wells that Comstock has approval for is an opportunity for a quick return on investment for a buyer.  That notice letter is for well "spacing", they aren't well permits. Well permits do not require notice letters. Comstock may only get well permits for four of those wells as it is somewhat unusual for an operator to drill five at one time. Most gathering systems (pipelines) don't have capacity for more that four wells at a time.  As to double, triple, whatever - since your not selling, pick a number.

Jimmy if you are a Byrd 1975 graduate you know me!

Jay

Yep! Thanks for chiming in and great to hear from you. It's been awhile!

Thank you for the info, Skip. For your reference, the cross-unit I referenced Comstock is paying royalties on is HA RA SUZ; DUGAN 32-29 HC showing interest as 0.00050052. 

Wow, thank you! For what it's worth, I've attached the plat we received with the two notices for the new wells I mentioned (red line is the producing well we're currently receiving royalties on).

I appreciate it!

 

Attachments:

You're welcome.  Every mineral owner in a producing unit should have a copy of their unit survey in their mineral file.

Thanks again, Skip! Does your point about having "a copy of their unit survey" mean anything different than what I sent? I'm in advertising so I tend to overanalyze (LOL). Just making sure.

Your royalty decimal is determined by a survey of the unit boundary and each individual tract.  It is quite common for the surveyed acres for a tract to be different than what appears in public record conveyances and the acres listed on a O&G lease.  Knowing your tract acreage and the acres in the unit and your royalty fraction, it is simple math to determine your eight digit decimal.  Your acres divided by the unit acres times your royalty fraction should equal that decimal interest.  Something like this:  40.762/650.181 x .20 (if your royalty is a fifth) or .25 (if your royalty is a quarter).  Simple enough that everyone can do it but you have to have the information contained in the unit survey.

Thank you Skip. To share a bit more info (forgive me if I'm being repetitive). When we got this offer I contacted my cousin who's in the O&G business in LA. He did some research and urged me to contact Comstock, suspecting they owed us money. That's when I discovered we had rights in the HA RA SUZ; DUGAN 32-29 HC well I mentioned. Was never aware of this. They had us in their system but no contact info. Anyway, we've now executed Division Orders and will each receive back royalties from when the well was drilled Jan. 2019. We won't retire on it, but certainly adds a decent amount towards it.

To your question: The Division Order for this well lists each of our interests as 0.00050052. The offer we received for each of our 10 acres said ..."the offer set forth is based on our records indicating 18.75% lease royalty...". I have no idea how that translates compared to the interest listed in the DO. BTW, I've submitted required documents to transfer our mother's share covering the remaining 20 acres. I assume the interests will be similar.

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