This is a wonderful position to be in, I own a few acres with 25% mineral rights on Bracky Branch 25-14-10w. One older existing well with 5 alternate wells permitted, the equipment is just being hauled on to the pad, single wide trailers lights generators etc...My phone keeps ringing with offers that are getting up there in numbers with zeros I've never seen before. The usual players I guess trying to buy my Royalties, Caddo, Cora, Maven, Atomic, Greenhook and others. The big question is this, if the offer is hypothetically lets say $35,000 per acre and from what I hear they want a fast turnaround of their money, how long would it be before they got their money back. I know there are multiple factors determining the result but what time typically would they hope for 18 months 2 years or what?
Well payout is hard to tie down without the well costs which of course will remain unknown until after the wells are drilled. These will be ~9969' laterals so well costs, drill and complete, would likely be in the $10.5 to $12.5M range per each, if things go as planned. Ah, but there is the rub or one of them. Mechanical problems can easily increase that by 10 to 20%. It's rare but occasionally an operator loses a well completely. Then there is the price of natural gas once the wells are turned to sales. Prices should still be elevated in the last quarter of 2022 when the wells go on line but the supply of natural gas is going up and will have an impact on price later this year and into 2023. Best case scenario might be payout in 9 to 12 months but then again that's simply a guess at this point.
Thank you for having a go at it Skip.
You're welcome, billy. I should have added that your hypothetical offer amount is nowhere near what you should expect. With just what I know now as far as number of wells and timing but not your royalty fraction, I'd expect a firm offer from a trustworthy company to be in the range of $16K to $20K per acre. Still, every time I post those current fair market value opinions, I shake my head at where offers are currently. Reminds me of the every rising bonus offers in the early Haynesville land rush. It is worth noting that they disappeared with no warning. I don't expect we will see that kind of crash in Haynesville mineral values but I will not be surprised that there is some reduction in offer amounts when prices get to be in the $4.25 to $4.50 range. The investment calculus will change.
If you own mineral rights that are leased then the price of the well has no bearing on the value of your mineral rights as the royalty is an income stream at the wellhead. If your section is getting ready to have 5 new alternate unit wells, you need to make financial projections before considering selling what will be your flush production. I would consult with a reservoir engineer to project the streams, then make a decision. If you don’t have to sell then why sell something that costs you nothing to own?
Yes I agree, The chase is exciting though. I intend hanging on and taking what I get. I can confirm that I did receive an offer for $36,000 and for $36,350 per acre. It is tempting but then I realize the buyers want their share as well, why not wait and hopefully get both. Thanks to you and Skip for Knowledge and wisdom.
What companies are you receiving offers from?
Caddo Minerals, Cora Minerals, Greenhook Resources, Maven Royalty et al.