Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2023 at 11:14

Benjamin,  without knowing the number of acres involved and the royalty fraction in your lease, it is impossible to provide an informed opinion.

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Permalink Reply by Benjamin Barr on September 12, 2023 at 0:20

Skip --  The net royalty acreage is 89. I think the original lease said 25%, but I think they use .0076 and .01 for the two original wells. I am assuming if they come back and permit and dig three new wells (they have the slots planned?), that it's not worth it, but if that's ten years out, I wonder if it is. Thanks for any thoughts.

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Permalink Reply by Skip Peel - Mineral Consultant on September 12, 2023 at 2:27

There are two producing wells, the original unit well drilled in 2011 and the three unit cross unit lateral well drilled in May of last year.  BPX holds a field order for three more wells and that will likely represent full development of Section 4.  So, no more wells after that.  You need to check the lease to make sure the royalty is a quarter.  The eight digit decimal for royalty on each well is different because the original unit well produces only from Section 4 and the new well produces from 4 and 33 and 28.  BPX will not need to drill more wells for some years in these three units.

If you royalty acreage is 89 that would be 44.5 net mineral acres at a quarter royalty.  $389,000 divided by 89 would represent a sales price of $4370 per royalty acre.  That's low.  I would not consider it a fair market offer for this point in time.  The maximum value will likely come in the future when BPX decides to drill those last three wells.  Mineral buyers favor early return on investment and the new well still has enough production to cover the purchase price in the next two years.  So at that point a buyer would be looking to have a nice future profit on those last three wells.  I'd say thanks but no thanks.

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Permalink Reply by Benjamin Barr on September 12, 2023 at 2:28

Helpful as always, Skip. Thank you.

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Permalink Reply by Skip Peel - Mineral Consultant on September 12, 2023 at 3:05

You're welcome, Benjamin.

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Permalink Reply by Ryan Howrish on September 22, 2023 at 8:07

HI Benjamin,

I'll offer a few additional thoughts regarding your minerals.  I am a 22 year reservoir engineer who has spent the last five years working the Haynesville play both at an operator and as a consultant.  Your acreage is approaching the Northern extent of the productive Haynesville play in LA.  Well productivity in this area is not the same as it is in the core of the play and therefor mineral valuations are lower.  The most recent Woods 4-33-28 well drilled across your minerals has produced 6.2 BCF in 13 months and 0.39 bcf/1000ft in the first 12 months.  Good wells in the core of the Haynesville are exceeding 1 bcf/1000ft in the first 12 months of production (~2.5 times as productive in the first year).  BPX has a much greater operated position in the core of the play compared to their position across your minerals.  The natural gas price was significantly higher in 2022 than any year in the previous decade and operating companies were testing the extents of the play.  

Additionally, BPX operates a well in Section 33-18N-16W that stopped producing in 2022 when the new well was drilled.  The field order that was approved by the DNR does not guarantee development nor does it guarantee that the order will not be amended in the future.  The legacy well in Section 4-17N-16W was drilled ~3300ft from the Western boundary of Section 4.  Drilling 3 additional wells across your section would require relatively tight spacing next to an existing well which will result in lower productivity of future wells.  Specifically the well closest to the new well across your minerals has produced 3.2 bcf which have an impact on a well drilled within ~1000ft of it.

The Mid-Bossier interval is not a target this far North so the most-likely development scenario for BPX is 2-3 additional Haynesville wells across your section.  The two most significant items impacting valuations from mineral acquisition companies are development timing and commodity price.  With the most recent well still producing greater than 10 MMcf/d, there is no urgency for BPX to drill additional wells across this acreage.  If natural gas prices in the future are high the existing offer might be considered low.  If BPX does not drill another well for 15+ years and the natural gas price is low the offer may be a good offer.  Minerals are valuable only if they are developed and it is an individual decision whether or not an offer is acceptable.

If you would like to connect and talk through how mineral acquisition companies conduct their evaluations or anything else regarding development in the Haynesville, please accept my friend request on this site and my contact information is available on my personal page.

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