Replies to This Discussion

Permalink Reply by Two Dogs, Pirate on June 3, 2015 at 2:50

From what I have read EOG doesn't want to increase oil production until the price goes up. Sounds like they are going to drill in proven areas but not complete but be ready to complete when the price reaches a certain level that they are comfortable with, Sounds like they are willing to buy new proven areas that are HBP that can be infilled with more wells sometime in the future.

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Permalink Reply by jffree1 on June 2, 2015 at 8:15

JWD,

There are any number of things to consider when thinking about selling minerals. I'm a sixty year old single female and I can tell you that I have given a lot of thought to whether or not I would sell any of my minerals and at what price.

The reasons which might convince a person to sell are many and varied: immediate need for cash (unforeseen medical expense, for example), a desire to raise cash for a different investment with a higher immediate potential for return (business venture, real estate purchase), to raise cash to send a kid to college or just for a cash cushion for retirement.

My Dad was always in the 'don't ever sell your minerals camp' but he was in a very comfortable financial situation which didn't require him to have to even consider such a move. Not everyone plans so carefully as he did or has the luxury to be so fixed in their thinking.

Whenever I sell any of my real estate I always reserve the minerals (none producing at the moment) with the thought in mind that if I don't have a dire emergency and need cash and I'm not getting any consideration for them in the price of the land... there is no good reason for me to convey minerals right now. If I needed, however, to include part of the minerals to make a real estate transaction work then I might consider doing that. If I needed to raise cash for any or all of the above mentioned reasons, I would not hesitate to do that. I have even pondered what my 'sell it all' price might be. I'm at an age where consideration of such matters and I want to be prepared if we have another leasing boom. I definitely have a 'cash out' plan.

Some things to ponder if you are inclined to sell:

1) this is a less than optimum time to be selling minerals in this area, right now. Yes, there is tremendous gas potential in most of the county and, yes, some parts of the county have moderate oil potential but the price of both commodities is depressed and, so, the offers you get won't reflect the true potential of the area but even in this depressed market... you should get paid something for the future potential.

2) the offer you have in front of you may or may not be a good offer. You must take the time to do your due diligence to find out about this company and to find some sort of comparable (get another offer or two) to get an idea whether it is good or not. These companies sending mail solicitations don't really 'know something nobody else knows'. They are looking for sellers, in areas which they deem to have future potential,  who are not necessarily informed (or want to be) but who may need cash and will take the first offer put in front of them. P. T. Barnum may not have actually mouthed the famous 'a sucker born every minute' quote but it is true, nonetheless. Don't be one.

3) is there really potential future production in the cards for your unit? That is a question that can be answered but you would have to share the unit names and your decimal interest in the units in order for anyone else to judge what your potential could be (the same is needed to judge the offer you are looking at). Location of the minerals is everything.

4) to Joseph's point about EOG, they were a top operator in this county but... they are not drilling anywhere in District 6 right now. And... they are focused on oil production and have been for several years now.  Basically, they drilled to hold all their leases and now they are done except for lease maintenance drilling until the gas market improves. The last wells they drilled in the district were in Panola Co. in the wet gas Haynesville NW of Carthage... last year. They completed two wells in SA in Spring of 2013 and have been 'drilling dormant' in this county since then.

Once again, the location of your minerals is key to getting any of us to formulate an opinion on the value and future potential. EOG held a lot of land and not all of it has great potential. I would even hazard to say that they have a few units where I suspect they will never drill again. I would expect to see them flip those units to another operator eventually. I would not even be surprised to see EOG flip all of their Haynesville units since their focus is on oil and wet gas now. Regardless, I don't expect to see EOG back here anytime soon.

If you don't want to post the unit names (so I can look at my well data) or your decimal interest then you can send me a friend request, if you like, and we can talk privately.

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Permalink Reply by JWD on June 3, 2015 at 2:46

We want to thank everyone for their input.  As far as need, there is not much at this time.  As I mentioned it is a small share, (pocket money) someone said.  We are trying to make good decisions.

So here is a little more info.  Maybe some of you have similar interests.

EOG

San Augustine County

1. Chinaberry 1H   % Interest   .00123789  approx.  45 acres

2. Phelps 1H    % Interest   .000637  approx. 40 acres

(Told you they were small :)

Again, thanks for every ones input.

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Permalink Reply by jffree1 on June 3, 2015 at 12:19

It's a small interest but that's a good area and I would probably be a hold... if it were mine. The cash value today would likely not come close to the production potential over time.

Drilling will pick up some day and I would suggest that you could have stacked potential in Haynesville and Bossier (5 to 10 X what you've realized with just one well per unit if both are economic to develop, more if they drilled longer laterals) and there may be James Lime and/or Cotton Valley potential there, as well, but there has never been any drilling in those formations, in that area, to my knowledge. I am not a geologist.

The IP reports for both wells are attached. You can see the formations (bottom of page two) found in those two holes. That doesn't mean that they are all viable targets... just that they were encountered.

Attachments:

• 405-30496 G-1.pdf, 27 KB
• 405-30500 G-1.pdf, 27 KB

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Permalink Reply by JWD on June 3, 2015 at 12:48

Thank you for the information

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Permalink Reply by Skip Peel - Mineral Consultant on June 3, 2015 at 15:09

Good work. Julie.  JWD, that's the kind of professional assistance that everyone should get when considering a sale.  When there is a good case for additional unit wells in proven rock any offer based on a multiple of prior months royalty will be short of current fair market value.

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Permalink Reply by JWD on June 3, 2015 at 15:34

Thanks Skip.  We will probably be holding for awhile.  Nothing pressing us at the moment.

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Permalink Reply by Skip Peel - Mineral Consultant on June 3, 2015 at 15:48

You're welcome.  IMO. Julie is the most knowledgeable member for SA and much of E TX particularly the HA/BO portion.  She offers complete land services.  We are lucky to have her.

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Permalink Reply by benny on June 5, 2015 at 16:02

Nice response. Intelligent. One small flaw is while you recognize the future potential of the minerals, you don't give the same recognition to the cash that they would receive. Unless that cash is put into a Folger's can and buried, it will grow.....for sure. While the minerals future value will only grow IF another well(s) is drilled. Big difference there. Bird in hand scenario.

So the real question is, using a normal amortization schedule, what will the cash be worth in 20 years versus the minerals.Well if no other wells are drilled, I would guarantee the cash wins that race.

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Permalink Reply by jffree1 on June 6, 2015 at 4:02

Nope, no flaw. I totally recognize the time value of money. My dear old Dad was an accountant with Mobil for 38 years. I cut my eye teeth on 'bookkeeping' (my job for about fifteen years) and the numbers don't work for selling that interest today. Especially if you consider that even though EOG could decide to get out of the HA entirely they could just as well decide that there is potential in something exotic like the Eagleford  in this area... in which case they will be back to drill for oil sooner rather than later.

Before you say 'that's just wishful thinking'... it was EOG who proved the horizontal oil window in the Barnett, if you recall. It was EOG who set out to prove the Niobrara in Colorado when nobody else was there. Do I need to go on? EOG looks for oil. I would bet money they have looked at the oil potential in every hole they have drilled in this area.

Even if  they did decide to get out of HA... the two most likely to acquire their acreage are XTO and EXCO... the only two operators still drilling HA today.

But forget about all that. Full disclosure... I've already said that I'm a mineral owner. I work, primarily, for mineral owners but I also work with mineral buyers on occasion. I know the arguments for both sides of the table. If JWD wants comps for the offer he has in front of him I can get him at least two more. They will be far and away above what he is looking at because they will include consideration for the future potential of the minerals.

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Permalink Reply by Alabama Fan on June 5, 2015 at 4:39

I got a letter from the same bunch wanting to buy my mineral interest in the Gobi unit in San Augustine. It was for less than I have received so far,

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Permalink Reply by benny on June 5, 2015 at 16:05

And ?

Not surprising actually, given that these wells decline over 80% in the first 2 years. If you have a 5 year old well, it is quite possible that you have seen more money already than you will for the rest of the life of the well.

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