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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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.

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.

Mineral owners must be their own advocates and never depend on O&G firms to look out for their best interests.  I run across mistakes in calculating and paying minerals owners the proper amount of royalty due on a regular basis.  It's a complicated business and mistakes happen.  Sometimes mineral owners aren't getting paid for something simple like incorrect mailing addresses or the failure to provide a W-9 tax form.  The longer that those types of mistakes go on, the less that a mineral lessor can recover under Louisiana law as there is only a three year recovery period.  Since Haynesville wells produce somewhere around 70% of their lifetime production volume in the first two years, it is critical that mineral owners actively monitor and manage their assets.

The 18.75% would the royalty fraction in the O&G lease.  That is also referred to a three/sixteenths royalty.  So, 40.762 divided by  650.181 = 0.06269331 x .1875 = 0.01175410.  The difference between that number and the 0.00050052 is in part the fact that your mineral right lies only in Section 32.  The well lateral is drilled in 32 and 29 so there would be an additional calculation that reduces 0.01175410 by the percent (linear feet of perforated lateral) of the well that is producing from 32.  There is also the possibility that the ownership of the 40.762 acres is not 100%.  When more than one owner has an interest in a single tract, we call that undivided interest.  Example, if you owned a 50% interest in the 40.762 acres, you would own an undivided interest equal to half of each acre or 20.381 net mineral acres.  The acres cited in O&G leases is that of the master tract and does not take into account whether the ownership is 100% or some fraction thereof.

Thanks again. Those numbers make my head spin (LOL), but I have a general idea. And, from experience settling my dad's estate, I certainly understand what you say about depending on O&G firms. It often seems like they don't want you to know too much.

I'm curious as to why the company that made the offer knew about our rights and current addresses but Comstock (allegedly) didn't.

My mom was pretty diligent about keeping up with the who/what pertaining to the minerals, but even she didn't know about this Comstock well. And to what you mention about more than one owner's interest in a single tract, that would only pertain to my sister and I, unless that was what you were inferring.

I haven't been able to locate the original lease. I'm assuming I can get a copy from the DeSoto court?   

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