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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Permalink Reply by weatherman on January 31, 2011 at 9:09

 

Crete Maison,  you might try these Go Haynesville helpful links.    My  recently received  COBRA  letter was placed in File 13.

 

http://www.gohaynesvilleshale.com/forum/topics/how-does-a-landowner...

 

 

http://www.gohaynesvilleshale.com/forum/topics/buying-royaltys

 


http://www.gohaynesvilleshale.com/forum/topics/energy-deep-resource...

 

 

Hope this helps.

 


landownerPermalink Reply by Crete Maison on January 31, 2011 at 10:06

I'll look at those links right away.

Thanks


landownerPermalink Reply by David on January 31, 2011 at 9:24

Bottom line, never sell your royalties. Cobra is notorious. My sister almost sold her mineral interest in some property we have in Iberia Parish for $250. The property over a 3 year period paid her over $600,000.

 

It is almost always a bad deal to sell to them.


landownerPermalink Reply by Crete Maison on January 31, 2011 at 10:05
Thank You.  Yeah, they sent me a draft for $250 at first and then increased it tremendously when I said it had to be worth much more.
Permalink Reply by Parkdota on January 31, 2011 at 10:02
Without going in to specifics, personal financial beliefs, etc., if the company one is dealing with is Cobra then the answer is definitely NO - DO NOT SELL.

landownerPermalink Reply by David on January 31, 2011 at 10:33
Parkdota, I would have to say your comment is understating it. Not  simply "no", but "not on a cold day in H***" no.
Permalink Reply by Parkdota on January 31, 2011 at 10:46
David, you're right....I did understate.  If it wasn't for the non cursing oath I took for the site I would have been much more colorful.  

landownerPermalink Reply by Crete Maison on January 31, 2011 at 10:37

You seem to be a real WIZ at this stuff.  I ready some info you wrote in October 2010 about determining value and whether to sell or retain.  How can I determine, in plain terms, the market value of my royalty interest, if I decide to sell.  How can I find a list of more reputable companies to buy my interest.  I am looking to sell and re-invest in real estate.  My acreage is only 4 acres anyway.

Thanks

Permalink Reply by Parkdota on January 31, 2011 at 10:44

Crete, it takes lots and lots and lots of math.  You gotta be able to estimate, or guesstimate, what you might make which takes a lot of local well research.  It's hard to use a royalty calculator on 1st year production so you have to make sure your estimates are based on local 1st year wells.  After year one the calculators work better.  You can create your own excell program, you still have to know decline rates, your interest, price estimates, and on and on.

 

There are quite a few companies that would buy from you.  I'd get 4 or 5 on the phone and bid 'em up.  That way you're getting the best price and, or seeing if the offers are fair. 


landownerPermalink Reply by Crete Maison on January 31, 2011 at 11:00
I know every well's production is different, but is it true that production generally declines after the first year or 1 1/2 years of production?  It sounds like many members on this site have experienced well production and royalty payments for years.  I am trying to determine if I should be worried that my royalty payments will get terribly smaller or cease all together because of a dramatic drop in production.
Permalink Reply by Parkdota on January 31, 2011 at 12:30
In 20-25 years of production on all 8 wells with an initial 10 million cubic foot per day well depending on price variances yet based on standard decline rates would come in over $100,000 per acre not counting other shale finds.  So, if you can make an up front fee of $40,000 for your 4 acres and think you can turn it in to over $400,000 in 20-25 years then go for it.  If not....stay put.

landownerPermalink Reply by adubu on January 31, 2011 at 12:59
Crete---agree with Parkdota-- one other point even if you can invest the 40,000 (Assuming you could get 10,000/acre) and in 20 years have $400,000. You would have to save it all for 20 years. Keep your royalty and you can spend as you go along with your royalty check each month and enjoy it because you have not spend it all. The ATM will pay it out monthly to you :(

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