Replies to This Discussion

Permalink Reply by North LA on July 21, 2015 at 11:11

Don't sell your minerals unless you have to for financial reasons. I would wait and try to lease or just live with the lease you have and wait to collect royalties if you are already leased. Ultimately you have to decide what's best for you.

Permalink Reply by DSR on July 21, 2015 at 14:22

Thanks. I appreciate your advice.

Permalink Reply by Skip Peel - Mineral Consultant on July 21, 2015 at 11:18

DSR, I suggest that you read this:

http://www.gohaynesvilleshale.com/profiles/blogs/fundamentals-of-mi...

Permalink Reply by DSR on July 21, 2015 at 14:23

Well, that hits the nail on the head. Thanks Skip.

Permalink Reply by Skip Peel - Mineral Consultant on July 21, 2015 at 14:50

Those are generalizations intended to lay out basic guidelines.  For those with the desire to perform some research as part of their preparation for executing an O&G lease, there is always the public records down at the courthouse.  There may be leases filed but it's more likely that land companies are using memorandums of lease which provide notice that a particular piece of dirt is leased without giving any of the important terms.  What you can find is which of your neighbors are leased and, most importantly, is there more than one company filing leases for your immediate area?  If there is some competition for leases, take advantage of that.  Get an offer from more than one company.

Permalink Reply by DSR on July 24, 2015 at 2:08

So here's what I got out of the article.

1. They're probably guessing, but the rumor mill is strong, The potential buyers don't have solid information.

2. The tax rate on the sale of royalties is as regular income: "ouch!" The tax rate on the sale of mineral rights is the capital gains rate. Good, but I don't want to sell my minerals.

3. Get professional help because things can get complicated, fast.

Permalink Reply by Skip Peel - Mineral Consultant on July 24, 2015 at 2:31

That's a good summation.  The only area that is proven at this time is the Terryville Complex which is roughly the southern two thirds of 19N - 4W, the northern one third of 18N -4W, the southwestern quarter of 19N - 3W and the northwestern quarter of 18N - 3W.  That's a rough outline as some of those areas only have a few wells but MRD seems confident that they are similar rock to the locations of their better wells.  Once you get beyond those boundaries, it is pure speculation on the part of those making offers to purchase minerals.  Operators know more than the mineral/royalty buyers but what they know specifically is limited.  There has been one good well and one poor well drilled to the east.  IMO this is not a shale play that is continuously productive over a large area.  This is an over-pressured, tight sands conventional combo play centered on the CV group.  And as such it is limited in size and may exist in several distinct and separated "islands".  Leasing lands and drilling wells entails a good bit of risk as does buying minerals in an un-proven area.  For those who aren't interested in selling, it's a fascinating story to watch unfold.  For those who wish to sell or are considering it, be advised that multiple offers today will over night turn into zero the day a well in their immediate area reports a disappointing completion result.  Plenty of risk to go around for all involved.  That is the nature of O&G exploration and production and the management of mineral assets.

Permalink Reply by Thomas C. McKowen, IV on July 24, 2015 at 3:53

Skip,         Why do you believe that a sale of royalty would not qualify as capital gains?  I do not see a distinction between a sale of minerals and a sale of royalty for tax purposes.

Permalink Reply by Skip Peel - Mineral Consultant on July 24, 2015 at 4:26

When you're sell a royalty interest, you're not selling the asset.  You're selling an interest in the income stream from the asset.  That's my opinion, you may wish to check with the IRS for their's.

Permalink Reply by Skip Peel - Mineral Consultant on July 28, 2015 at 3:34

Though $6K sounds like it might be in the fair market range at this time, whether it is judged as sufficient would depend on the royalty fraction in the lease and any other valuable terms such as a no cost royalty provision.  The details matter.

Permalink Reply by DSR on July 29, 2015 at 7:45

No doubt that the details matter. The no cost royalty should markedly strengthen the value, The Pugh clause may weaken the value to a buyer, but not by much, while it offers me, the potential seller some retained value.

I've received three more offers since I posted this last week. One came in the mail as a complete contract for the royalties at $5,500 per acre...just sign, notarize, return, keep an eye on the mailbox for the check. I read it as best I could with my untrained eye, but I don't have enough expertise to know if it's legit or not. Skip, can you PM me with your contact information?

Permalink Reply by Skip Peel - Mineral Consultant on July 29, 2015 at 8:59

Click my name in blue and go to my personal page.  You can leave a message there or use the off site email address posted there.  Unsolicited offers that come with a check and a mineral deed are to be avoided.  That's not the way to do business and such letters are under scrutiny by the legislature with an eye to prohibiting such offers.