landowner

New Shaler seeking advice on whether to sell or retain royalty interest

I was approached by Cobra and presented with an offer to sell my royalty interest.  I thought about it strongly, based on the advice a Chesapeake rep gave me back in late 2009.  The well we're on started producing in November/December 2009 and we were told that it would produce a lot in the beginning and then began to decline around 1 to 1 1/2 years later.  Rep said that is when I can consider selling royalty interest.  Based on your experiences with your wells and royalties, is this a trend?  I have no clue about what to do and no experience with this at all.  Your best advice is appreciated.

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landownerPermalink Reply by adubu on January 31, 2011 at 11:24
Crete---- look through out this site and read some of my comments on value of mineral---first and most important if you only have one well in your unit you have to remember they are attempting to purcahse your minerals by value of only this one well. Remember if your well is a H Shale well in typical 640 acre unit with 80 acre spacing over time the operator can drill 8 wells in the unit haynesville shale + 8 Bossier Shale possible  and you receive royalty on ALL. Then if your minerals are in a mutli-formation area--- Shale--cotton valley---travis peak-- petti--James lime--- Haynesville Lime-- smackover-- etc many more formations you can have many-many wells. Your minerals can be like a ATM prints money. Any one buying calculates a mutiple X return over time of what they paid you. Value " Priceless"

landownerPermalink Reply by adubu on January 31, 2011 at 12:25
Crete--- real example---I'm have few acres in a cotton valley taylor sand gas unit in east texas  (this is just above the shale and Lime formations in depth) the operator has drilled 22 vertical wells over last 8 years with plans for 9 more (20 acre tight sands spacing) I have received to date about $19,000 per net mineral acre in royalty to date. (only a  3/16 royalty lease) This is only about 40% of the EUR on these 22 wells production the remainder over next 20 years to come. There is also proven Shale and Haynesville Lime (aka smackover lime) in this unit that will one day be drilled-- Value ??????? . So Crete don't let anyone "legally steal" your minerals. Who know what they could be worth. As much per acre as mine or less who knows. The people who purchase your will plan on a mutiple of many many time what they paid that's for sure. Yes some minerals have no worth if no oil or gas in area, but your have already proven with well. This is just IMO never sell unless you have a life or death need for the money then go to bank and us your minerals as collateral for a loan

landownerPermalink Reply by Spring Branch,mineral owner on January 31, 2011 at 13:15
Was that $19,000 before or after tax, Adubu?

landownerPermalink Reply by adubu on January 31, 2011 at 14:47
SB-- this was total of net royalty checks that had severance tax already deducted from total gross ( so is after tax) The severance tax varied from well to well due to "High cost tight sands" had decrease allowance by the state for 10 years that ranged from 0% on couple well some 2.5% all the way up to full tax rate of 7.5%. After 10 years severance go back to 7.5% all wells. The ~ of $19,000 per acre of course is gross then I had to pay Uncle Sam regular income taxes. We do still get to deduct depletion allowance of 15% then remaining net is calculated into my total income for tax calculation. Happy I live in Texas so at least no State Income Tax only Federal Income Tax.  
Permalink Reply by Gale on January 31, 2011 at 17:30
Hmm your descriptions sound similiar to mine except I have a hundred acres in one unit from one side of the family and another hundred acres that has a 50% override in another unit all tight sand wells where we received tax credits for 10 yrs they expired in 2003. Interesting mine are in the Beckville area and Carthage. I would never sell any of mine in fact I have tiny amounts in both downtown beckville and carthage but one never knows what they will find and our family has reaped the benefits for many years some wells were drilled in 1977 and some in 1978

landownerPermalink Reply by Crete Maison on January 31, 2011 at 14:11
Very good perspective.  Thanks for the break-down, in plain language.  I always assumed that I would continue to get paid from just that one existing well.  I have to digest this all and research info on this website, as you suggested.  Do you have a link for a map so I can see exactly where my acres are located in the Haynesville / Shale area?

landownerPermalink Reply by Crete Maison on January 31, 2011 at 14:02
I appreciate this, very much.  How do I determine the operators intent to drill (or Not) more wells?           I have a lot of investigating to do.  I especially need to get familiar with the O&G terminology.

landownerPermalink Reply by Mac Davis on February 2, 2011 at 13:15

Do NOT sell.

 

I believe no one will give you a "fair" price for your mineral rights if you're a little guy.  There are simply too many ignorant people who will sell their mineral rights for far less than they are worth.

 

If you're desperate for cash right now and have to sell the mineral rights despite the fact that you're only going to get pennies on the dollar for what it will likely pay off long term, spend a lot of time finding the best offer.


landownerPermalink Reply by Jack Blake on February 2, 2011 at 14:09
Mack Davis speaks the truth cried jack Blake!!!!
Permalink Reply by Linda Whatley on February 2, 2011 at 17:00

Hey Jack,

 

Haven't seen you in a while.......where ya been???

StevewPermalink Reply by Stevew on February 2, 2011 at 17:57

Crete, in my humble opinion, there is no such thing as a "fair" price for mineral rights.

 

My daddy told me never to sell them. I was tempted by offers like your over the years  But, I will tell you a secret ... daddy was right! He was dam right! Never sell the minerals. You have no idea what is down there and once they are gone they are gone and future generations will think you were a fool.

 

However, the links people posted also contain some pro-selling arguments. There are some major life emrgencies that are worth selling royalties for.  Thankfully, I have never run into them - or the more I considered a "Cobra" offer (apt name) I remembered what dad had said and I had to go with him one last time.

 

good luck, it's a fascinating study, natural gas, fracking and the Haynesville. The final chapter has yet to be written ...

 

Logger

 

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