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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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?   

Mineral buyers find you through the public record usually an O&G lease.  The DeSoto clerk of court website offers remote access.  You pay something like $20 for a 24 hour subscription and you can make a copy of your mother's lease.  You can also look through all the conveyance records in her name to see if there is any other instrument that you should have in your file.

The SONRIS website is the way mineral buyers know when an application for alternate unit wells covers a given section or sections.  That is an initial step and requires a notice letter to be sent to all mineral and surface  owners of record in the unit or units and to those immediately adjacent to a distance of 1000'.  The Field Order is effective indefinitely so there is no way of knowing when the approved wells might be drilled.  That is unless you are checking SONRIS on a regular basis to see when a permit to drill is issued for one or more of those approved well slots.  There is no notice required for this step and if you don't live on the property, close by or have friends or family in the vicinity, you wouldn't know that wells are in the process of being drilled.

Hi Jimmy , Interesting thread as I received a quote to purchase recently also, 40 acres. If you don't mine me asking are the initials RM? I inherited also and really know nothing about how all this works. for years I figured I was getting ripped off because I live in CA. Since it switched from oil to gas my checks have been better. I will never sell but being out of state I wish I knew more, some times my invoice is from 8 wells and some time 5 not sure why. I should ask Comstock the reason. Rick

Guys,  there are literally dozens, maybe a hundred, mineral companies currently making offers, sending unsolicited letters and making phone calls.  A GHS member who has received a bunch lately sent me a list of ten,  I hadn't heard of a single one and I know a lot of them from members sharing their letters.

Rick, if the wells you mention are unitized, it's not strange that the number reporting varies from statement to statement.  That's pretty common.  In Louisiana a drilling and production unit is issued an allowable, the amount of oil or gas that the unit is allowed to produce.  That allowable may be produced by one well or ten  or any combination thereof depending on the type of wells they are.  I read a lot of revenue statements provided by my clients and I see the variation in wells reporting from one month to the next.  This is most common with units other than Haynesville Shale primarily Hosston, Cotton Valley and Lower Cotton Valley.  It does occur for short periods of time with Haynesville wells as operators tend to shut in producing wells when they are fracking new wells in close proximity.

Thanks Skip , makes sense but a few that were missing were the biggest producers all year . I'm in AS Stacked surface location is what it says. Section 25 T12 N-R16 W area for what it worth. Thanks for the reply. Rick

Hi Rick,

The offer came from Buffalo Bayou Resources out of Houston.

– J

Jimmy , Not the same , like Skip said there must be dozens, mine was Rushmore, I was 6 figures which was way higher than others. I figure they know what the future holds better than me but what is weird is my last royalty check was down about 80% from what others have been the past year. 

Rick, buyers aren't necessarily interested in your current royalty income.  They are making assumptions based on facts.  How many well slots are undrilled in your unit?  Do you have proven reserves for both the Haynesville and the Bossier?  How low is current production volume in your unit?  How active is your operator in the area of your minerals?  How many rigs is your operator running in the Haynesville?  What does the forward futures price strip look like for the next 12 to 24 months?

Some mineral buyers may still be using the old ploy of making an offer based on your current month's net royalty income times a multiplier.  That might be something like 60 months which was kind of standard for years prior to and in the beginning of the Haynesville Shale explosion.  Unconventional reservoirs like the Haynesville are not like the old method of wildcatting or developing conventional reservoirs.  Basically there is not such thing as a dry hole.  Mechanical problems do happen in drilling or completing a well but that is pretty rare.  Developing Haynesville reserves is said to be more like manufacturing. Those future wells are basically guaranteed to be drilled and well designs get better over time becoming more productive.

Hi Skip , I sent you message on your consultation services. 

My offer was in the same neighborhood as was my sisters. Perhaps there's some future production planned then.  

Comstock is sitting on a Field Order for five wells that include Section 32.  The company has taken out a series of well permits, basically one a year going back 8 or 9 years, yet never drilled a Haynesville well.  There is shallow production holding old leases like yours for 18.17%.  Comstock can wait to drill one or more of those five wells but you'll only know it if you learn to use SONRIS and check once a week for well permits.  I have know idea why Comstock has taken those permits and never drilled a Haynesville well.  That is unusual but Comstock has done the same in a couple of other sections in that area.

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