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Permalink Reply by Skip Peel - Mineral Consultant on August 16, 2018 at 14:06

As development returns to the Greenwood-Waskom Field and drilling picks up, there will be multiple parties making offers to acquire mineral rights and royalty.  The fair market values will vary greatly based on location, operator - if in an existing drilling unit and publicly available information regarding future development possibilities.  Thank Comstock for making some good wells and proving that this area is economic.  Bud, any price you hear is of little value if you don't  know the specifics of that particular mineral tract.

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Permalink Reply by Bud on August 17, 2018 at 11:36

Here is some information that relates to market value of this specific property.  There are existing shallow wells on the property that have been producing a number of years.  The royalty from these wells has averaged about $50/acre/year for the past 6 years. This unit has not been drilled to the Haynesville Shale yet.  However, there are permitted Haynesville Shale wells for this unit and the latest info indicates that drilling will start within a month.  These are long lateral wells that will involve 2 units.  There are producing Haynesville Shale wells in units directly adjacent to the north and to the south.  One land owner to the north got an average of $500/acre/year over a seven year period for their interest in the Haynesville Shale well in that unit.  Royalty owners in the unit directly to the south have been offered $6500/acre for all mineral rights, not just royalty. If $6500 is a fair offer for the unit to the south with production already established, I would assume that the value of the property in question might be a little less since there is no actual Haynesville Shale production in the unit.  However, production in the Haynesville seems to be very consistent in surrounding areas, so possibly the value is close to the offer in the other unit.  Your thoughts appreciated.  

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Permalink Reply by Skip Peel - Mineral Consultant on August 17, 2018 at 11:40

Do you know the royalty fraction for the leases where the $6500/acre offer was made?

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Permalink Reply by Bud on August 17, 2018 at 12:02

I  do not know for sure.  The area where the offer was made was Section 9, 16N 16W. The area could be covered by an old lease with lower fractions, and likely there are multiple leases.  The land we have interest in to the north has a new lease with a 25% rate.    

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Permalink Reply by Skip Peel - Mineral Consultant on August 17, 2018 at 12:12

Bud, let me introduce you to an important concept regarding mineral rights under a lease.  Those in the business of buying and selling mineral rights use a metric called a Royalty Acre.  It's an old concept and when it was first used the majority of leases were for a one eighth royalty fraction.  So one Royalty Acre is equal to one net mineral acre at a one eighth royalty.  Since you have a quarter royalty lease, for every net mineral acre you own you have 2 Royalty acres.  If your lease was at a one fifth royalty, you would have 1.6 Royalty Acres for every one net mineral acre.

There are other lease terms, besides the royalty, that can influence the royalty revenue received under a lease such as a "no cost royalty" clause.  Without going into a lot of extra detail, and there is a lot of extra considerations, current fair market offers for minerals prospective for Haynesville Shale with no recognized Bossier Shale reserves (you are too far north)  should be in the range of $3500 to $5000 per Royalty Acre.  This is my opinion and you will find plenty of others if your were to ask people who buy mineral rights.

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Permalink Reply by Bud on August 17, 2018 at 12:33

Thanks.  That is helpful.  We do have a clause in the lease that excludes any post production costs except taxes from being deducted from royalty payments, so that will help some in the value.  This property has multiple owners of royalty in the same family, with one interested in selling to other family members, So I am trying to establish a value that is fair to everyone.   

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Permalink Reply by Skip Peel - Mineral Consultant on August 17, 2018 at 12:38

When I use the term, net mineral acre, that is a way of expressing ownership interest by each individual that owns a portion of the whole.  So if the mineral tract is 40 acres and there are 4 equal owners then each is said to own 10 net mineral acres.  Under Louisiana law, each may act independently of the others.  So a sale is the decision of each individual solely.

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Permalink Reply by Bud on August 17, 2018 at 12:09

Not sure of the fraction.  The area where the offer was made is in Section 9 16N 16W.  There may be an old lease covering some of the unit, and there are likely multiple leases.  The property we have in the unit to the north has a new lease with a 25% royalty rate.  

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