landowner

Pinnacle Oil & Gas royalty purchase a fair offer?

Pinnacle sent me a leter offering to purchase royalties for $12,000 for 10 years for 1/2 of 1/5 of 1/4 for 4 acres in Red River Parish. The guy at Pinnacle I spoke to says it's a good deal - of course - but was wondering what insight anyone who has followed this closely has on it. Is it a decent price?

I'm guessing they must think a well is going in there sometime in the somwewhat near future. It's in Sec 22 T12N-R9W.

Am new to most of this so any insight is greatly appreciated

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Permalink Reply by jffree1 on June 6, 2010 at 7:39
newbie, I think you can get an idea with a royalty calculator. These have been discussed at great length previously and can be found by searching "All discussions" for "Royalty Calculator" but to save you a little time here is just one of many that are available:

http://geology.com/royalty/

landownerPermalink Reply by DJG on June 6, 2010 at 7:39
"With that being said, I'm trying to get an idea of how much or in what range are the monthly royalty payments on a pretty decent - but not necessarily a top producing- well? Is there a site that I can get that type of information? I know those are pretty vague terms but I'm hoping there's someplace I can get somewhat closer to that type of information."

I posted this Excel sheet (attached below) a few months ago which is a royalty calculator that tries to take into account the (very) high rate of decline on these shale gas wells.

You can plug in variables like price of NG, initial production test results, total acreage owned, total unit size, etc, to try and get some projections of what the long-term potentail for your acreage MIGHT look like.

I still think this sheet is projecting things out a bit higher than actuality, but I do think it is more realistic than some of the other online calculators out there which tend to over-estimate the outcome on account that they do not sufficiently take into consideration the high decline curves of 80-90% in the first year on these shale wells.
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landownerPermalink Reply by DJG on June 6, 2010 at 7:57
I plugged the following variables into the calculator that is attached above:

1) 4 mineral acres
2) 640 acre unit
3) 12 mmcfd wells (mid-level)
4) $5.50 gas (higher than today's price, but likely to be low over the 40+ years of production

If your unit does end up getting in-fill production for the full 8 Haynesville wells and another 8 Bossier wells, then upside long-term royalty payout for those 4 acres has the POTENTIAL to reach upward of $400K over 40 years.

Again, this would all depend upon whether your potential unit ends up getting fully developed over that time period and other factors such as NG Price and ultimate recoveries for the wells in your unit, etc.

All "long-term projection" scenarios aside, it is also interesting to look at the 1st year royalty in this calculator as it shows that the very first well would pay out around $18K in the first year of production.

So the real question could be how long do you think you will be waiting for that first well as you could likely be making as much from that first well as you are being offered now in selling your minerals.

Then, any long-term potential is just gravy..... (albeit, potentially lots and lots of gravy....)
Permalink Reply by Kat Bloomfield on June 6, 2010 at 10:08
here's a similar excel spreadsheet I posted way back when . . . Compares UMO to lease royalty.
Variables are unit size, royalty, size of tract, price of gas, etc.
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landownerPermalink Reply by Henry on June 6, 2010 at 13:48
newbie,

12N-9W does not have any completions, according to my records, so there is some amount of risk involved with that, as compared to if you were in a section with a lot of productive wells.

So let's take a conservative guess, and say you are in a region that will give an EUR of 4 Bcfe. If you get $3.50/mcfe for your gas, that results in a lifetime payout of $5500/acre for this first well. I have no idea how EnCana will control the flow rate, so I cannot predict monthly royalties.

You have no idea when the 2nd, 3rd, etc. well will be drilled. That's all part of the risk that you and the buyer weigh, when selling your royalties.
Permalink Reply by Jo Ann Carter on February 16, 2012 at 9:39

I rarely  ever post, but because Pinnacle did so many wrong I will tell you, be careful. They have future plans in mind. Never ever thing that they have you and your interest in consideration.

Permalink Reply by a on February 16, 2012 at 8:47

Did you ever sell your royalty?  It looks like a well never got drilled.


landownerPermalink Reply by PN on February 17, 2012 at 7:32

Yes I did. Then Encana chose not to renew the lease.

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