Mineral Value
3 months ago, I sold a portion of my mineral interest. Prior to the sale, there were no producing wells within a 2-3 mile proximity of my minerals. This made it difficult to determine a mineral value. However, since that sale, there have been 3 very large wells(25-31 Mmcfd) reported around me. Im, again, considering selling a small portion of my mineral interest. Yes, Im aware of the long term value of minerals, but my question is this: Is there anything that could happen, at this point, to either increase or decrease the value of my minerals? Obviously, the mineral value went up, significantly, with the IP reports of the new wells around me. Would the immediate value, of the minerals, continue to rise with the reports of more wells in the 25-31Mmcfd range? Would their value decrease with new reports of lower producing wells? Or will their value remain, somewhat, constant just based on these new large producing wells around me? Thanks for your input!
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Replies to This Discussion
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Permalink Reply by adubu on
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ROG__I can give you addition information about value of minerals. The one lease I have that is producing is in east texas minden cotton valley field in Rusk County Texas that has change operators 4 times since 2001. The last operator Sandridge Energy has drilled 15 wells in the unit last 3 years total wells now 22 in the unit with 9 more plan at 20 acre spacing due to tight sands of cotton valley. Based on EUR estimates ( 1.6 bcf/CV well)the unit has produced only about 30% of estimated EUR. The deep rights have been sold by SD to NFR Energy who at some point in future when prices improve will drill both bossier/haynesville Shale and Lime wells -3 addition formations proved to be productive in the area--added value ???- In last 6 years with most occuring last 3 years these minerals on ONLY a 3/16 royalty has produced income of ~$19,000 per net mineral acre. SD presently has moved it's rigs off NG drilling and changing their plans to 70% oil drilling in Permain Basin West Texas. They will return in future to complete drilling out the unit of CV sands NG. Then add NRF for deep drilling in future the income per acre will increase. So presently with the 22 wells EUR in production into the pipeline will return ~ $3,000/acre for several years to come. So as I said the minerals in your area of Shale at 6-8 or more Bcf/well could easly be valued at > $125k per acre if not more. The investers will be very nice to those that want to sell their minerals for they are looking for 8-10 times return on their investment same as the operators drilling the wells.
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Permalink Reply by adubu on
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rog--- addendum to above only 23% (8 Bcf produced to date) of EUR produced on the 22 wells (~35 bcf total EUR) if the other 9 wells drilled in future add 14.5 Bcf addition gas total for unit ~ 50 bcf. So if 8 bcf in this unit and if NG avg same price as last 7 years then just the CV will produce return of ~ $ 118,000 per acre. Then add value of Shale and Lime production. Value is Awesome--- good retirement mail box income. Can Not Get That Type Return On CDs today.
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Permalink Reply by adubu on
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Mike--- what some people try to steal "Buy"the minerals that have production is 3-4 times the last years income revenue payed to royalty owner not bonus payment on lease. Where the owner gets low ball is on leased minerals with only 1-2 wells drilled in the unit and the owner fails to calculate the value of many many possible future wells to be drilled.
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Permalink Reply by Spring Branch,mineral owner on
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So, Adubu, are you suggesting that someone would pay $125,000 per acre in the hopes that in about 30 years they would get their original investment back??? Heck they had their money to start with. Why invest and wait years just to get it back. Doesn't sound like a good deal to me. What you are actually saying is that over the next 30 or 40 years, each acre will produce an income stream of $125, 000 or so, based on numerous assumptions. As I said, the investor has his money to start with........sure doesn't sound like a good deal to me to wait many years just to get one's money back! Or then perhaps it is not really worth $125,000 an acre today!
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Permalink Reply by adubu on
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SB---I agree that if look at value today of what 125,000 is worth 25 years from now ---yes it would be discounted in value probably at 50% discounted with low interest rates today so 125,000 would be cash value of $62,500 today.I m not saying that 62,500 is the market value of minerals in that unit today--is it 10,000 or 15000 or 20000 per acre--WHO KNOWS--- I did not say paying 125,000 today was good investment and I would not pay that much either. I just said what the minerals could return the mineral owner who has no risk other than leaving the money offered on the table. Yes buying minerals has speculative risk to it for the investor and he wants to be paid for risk if he is correct. I am not saying it's wrong and stupid to sell your minerals it could be the best thing to do for individual in their thinking. The seller should be fully inform of pros and cons of selling. This info I posted in simple added information some one can use and think about so they can have more info to make their own decision of what best for them.
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Permalink Reply by Spring Branch,mineral owner on
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Not nearly enough discount, Adubu. If I earn 2.4 % a year, I double my $ in 30 years before tax. If all I can earn over the next 30 years is 2.4 % a year before tax, I'm either stupid or nuts. It's a moot point.........I'll never last that long!
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Permalink Reply by adubu on
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SB--With CDs paying 0.80 % and ten year US Treasuries paying 2.6% there is no sure no risk place to invest without principal risk. The 30 US bond pays only 3.8% but what if interest rates increase which IMO we are in a bond bubble; who wants to tie up their money for 30years at 3.8%. I go back to what I said who know what the true fair market value is----- with all the knowledge you have about the shale play and locations that are in the core, Question what is your opinion of the market value of minerals are today??????? I am simply added info for people to add as another variable in calculating what their minerals are valued at if they decide to sell.
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Permalink Reply by True Texan on
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You do not want to sell any of your mineral interest. I don't know where your property is but the value could be a lot, lot more than you think you should be getting. These mineral interests are based on supply and demand. For a well to be drilled in the State of Texas they need 640 acres + to pull a permit. A pool is not round or square but can be any shape is what I understand. They can drill anywhere within the pool as long as it's with in a given feet from one side of the pool. There are many companies working these oil plays all over Texas right now. It's in effect a sub land grab. They are trying to lock up the mineral interest in the known lager plays. There is a bunch of people that are wanting to purchase your mineral rights and you don't even know it. That is because you have not contacted them and they just started drilling in your area. Once they know that oil or gas is there then these companies will start coming out of the wood work. To give you an idle, one of my tracs I had an offer which said they would pay me $8,700 within a couple of weeks to purchase it. The gas market prices went up and another company offered me $98,000.00 for the same trac. I have also had the same thing happen on leases. I had not even turned down the first offer and same company shot me another offer. I was like these guy are crazy or they know more than with I do. Your minerals are like stock when you get down to thinking about it. It's all about supply and demand and what is happening in the world. I feel that with all of the problems they are having off shore your value is going up each day.
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Permalink Reply by True Texan on
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Hello Digger1, I don't purchase minerals. I do have minerals in about 12 counties in Texas. I would say that right now is not the time to sale. It would be a time to purchase if you had other interest in the area of which the minerals for sale is located. Say you wanted to put a pool together. Just ran a quick google search and came up with this ad. (SHELBY COUNTY MINERAL SALE Description: avoid the rush-shelby county minerals for sale.under lease until 2010(sept.)
19.589 acres for sale at $2500 per acre. z.c. walker survey and c.b. lindsey survey) This guy got his bounes and is now cashing out the rest. Sad thing is that maybe under this guys land they find gas or oil and then the market price goes up within a year. The $50,000.00 dollars he wants could be what a well could give him over the next couple of years. Some fields last a long time. Look at the Kilgore and the Hawkins fields. They were drilled over 60 years ago and are still pumping today. The East Texas Oil Field has produced more than 4.5 billion barrels of oil.
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Permalink Reply by Stevew on
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I agree it is a TERRIBLE time to sell mineral rights. Prices for natural gas are down in the $3.70+/- range and everyone is talking over production. Wait as long as you can, supplies will go down and demand will go up.
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