Replies to This Discussion

Permalink Reply by Parkdota on October 15, 2010 at 16:48

To my knowledge they've got the same info you/we are going to have. Study your surrounding production, come up with what you perceive to be your estimated production based on your research, place that in an excell format and/or royalty calculator based on decline rates based on estimated pricing, use time intervals to see how long you estimate for your production to come in to play, compare all that to what they're offering or might offer based on other surrounding royalty purchases, and then find you're rate of return in comparison to both while taking in to account for taxes, etc. Keep in mind assuming they do drill there's going to be roughly 8 wells, not just the one that your rate of return is estimated upon. There is plenty of information in the archives, maps, etc. on this site to easily come up with a strong education mathematical estimate.

Or, you might simply post your section, township, and range and one of the professionals on the site might give you the info in a nutshell.

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Permalink Reply by weatherman on October 16, 2010 at 2:29

Thanks for your insight and information Parkdota. The friend's land is in Sec. 36, T 11 N, R 10 W of NW Natchitoches Parish, Louisiana.

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Permalink Reply by Parkdota on October 16, 2010 at 4:57

The only well I see from the HA that's come in is in section 7 which was around 15mcf/day. This map indicates that sec 36 is on the low end of estimated ultimate recovery (EUR) although the well in 7 is better than the map's estimate. Looks like 36-11n-10w is with Encana which would make me happy. The well in 7 based on 09' prices based on 1/5th lease (terms of lease differ of course) might reap roughly $4,500 an ac for the 1st year, $2k/ac the next, $1.6k the next, $1.4k the next, $1.3k the next, and so on. So, if your friend has 10ac they might make around $45k the 1st year on one well. Royalty offers I've seen range but let's just say they offer $5k/ac (assuming they won't pay high due to the low EUR per map) which would be $50k. In 4 years time your friend might have made $95k and received only $50k. They would have to get an annual return of roughly 35%+ on the original $50k for it to be a good deal which for most people is not obtainable. Of course this isn't even considering that Encana would drill 7 more wells assuming "normal" operator trends. The 2nd well might start around the 5 year mark from the original, sooner, or later...one never knows.

Basically, the math is based on a plethora of estimates based on known facts. Taking that into consideration one must decide if the area in which one is in can get the 15mcf, what are their tax implications, what can they put their money into for investments, what are the perceived rates of return, what are prices going to be, when is the 2nd well going to be drilled, is the BO big in my area, how old/young is the person, etc. In summation I wouldn't sell based on what sec 7 well came in at. Sit tight.

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Permalink Reply by weatherman on October 16, 2010 at 8:09

Thanks again Parkdota for your mathwork and information....And I agree... they wanted to offer him/her upfront $100K which royalty lease for 1/2 of royalty produced, which would run ten (10) years....the numbers just didn't add up I thought based on: Serial No. 240253 (JOHN MONDELLO 29 #H1) 029-11N-09W ; last report date of 07/13/2010 @ 13,292 MCFD; Serial No. 240624 (VIRGINIA WEBB 13 H) 013-11N-10W 09/14/2010: 16,650 MCFD; 19/64 CHOKE; and Serial No. 237289 (HA RA SUA; J L MESSENGER 8) 008-10N-09W 11/12/2008: 5727 MCFD; 12/64 CHOKE ....all wells located within a radius of 2-4 miles. Again, thanks for your help on trying to make an informed decision on this.

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Permalink Reply by Ginny on October 18, 2010 at 15:22

In regards to the same question that weatherman asked...do you have any info in regards to the same scenario in Sec 23/24 T11N, R14W DeSoto Parish?

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Permalink Reply by Parkdota on October 18, 2010 at 15:47

In 11n 14w section 5 came in over 10million cubic feet/day, sec 18 right at 10mcf/day, sec 19 right at 9mcf/day, sec 30 at 6mcf/day, sec 31 just over 5mcf/day, and sec 33 over 8mcf/day. That is an average of around 9mcf/day which is roughly 60% of the 15mcf/day scenario as described there in. So, basically I’d estimate you’d have to make over 20% return on investment of the up front funds paid for one’s royalties for it to be a good deal but as mentioned the operator is likely to drill more wells, although in what time frame only they know for sure. With the production in surrounding wells in 11n 14w I wouldn’t sell. You also have the Bossier to be drilled at some point as well. The above map shows that you might be in a strong BO area.

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Permalink Reply by HMI on October 19, 2010 at 9:15

Parkdota,

Do you have a link to where this map can be viewed in a larger format. I'd like to gain some clarity on the lower section of the "Do not plan to drill" zone in Bossier Parish. Specifically above HWY 80.

Thanks

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Permalink Reply by Parkdota on October 19, 2010 at 9:37

I sure don't....sorry. You might can save it and then open it up on your computer via "paint" or some similar version. You might search through this link as I got it from Encana's web page http://www.encana.com/aboutus/

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Permalink Reply by HMI on October 26, 2010 at 0:42

Thanks Parkdota. I'm just now getting back here to check in on this post. I saved it to "my pictures" and then used the magnification tool but it gets blurry when you increase the size. I'll try going through the link you posted. Thank you for posting it.

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Permalink Reply by Mac Davis on October 16, 2010 at 13:05

Lemme simplify it.

No one's going to give you a "fair" offer for your minerals. There are too many ignorant landowners who are willing to sell their minerals for a lot less than their economic value.

You sell if you need the money now rather than waiting for payments over time and are willing to give up a lot of money to get it now. Or you sell because you don't want to take the risk that the mineral rights won't pay off, fully understanding that you're paying WAY too much for the protection against the risk.

Be careful. There are a lot of snakes in the O&G business. They'll not only try and cheat you on the amount of money they offer. They'll try to steal from you in the fine print of the contract.

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Permalink Reply by weatherman on October 16, 2010 at 14:58

Thanks Mac Davis for your input....we also maybe helping others who are facing a similar decision. I just don't want a cobra to cheat us on this.

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Permalink Reply by Mac Davis on October 19, 2010 at 0:07

There are the outright crooks and scam artists in the business to watch out for.

I'm saying that right now, I think the "fair market" price is too low compared to what the minerals are likely to pay out over the years. Even the honest people are not going to pay more for your minerals than what they can buy someone else's minerals for.

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