Replies to This Discussion

Permalink Reply by Steve P on February 7, 2019 at 9:15

Skip is a good man, and also is very knowledgeable about the O&G business (those are two very different things, of course).

I have "family land" that has been in the family since the very early 1900's.  A few years ago, I had a health scare, and I wrote a long email to my children describing all of the various parcels, how I came to own them, who they were leased to and their potential monetary value from leases.  My admonition, different from your fathers, was that they were to never sell the land unless they faced the most dire circumstances, and even then, they had to offer it first, at a good price, to my nieces and nephews.

I got an offer letter for minerals in one section this week.  I'm not interested in selling.  I'm not facing "dire circumstances" and i think that this would simply not be a good financial deal for me.  But everyone has to make their own judgment on this.

sounds like you at least did it in a smart fashion.  Good for you.

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Permalink Reply by Hopeful About Natural Gas on February 7, 2019 at 20:27

Steve, 

I really like how you asked your kids to offer your rights to your nieces and nephews first. If my family had shown such unity many years ago I might still live in Louisiana!  But I don't have hardly any close relations anymore, and those I do have were taken care of with the sale. But, it's a real nice life lesson for your kids and their cousins.

I can barely remember it, but I am fairly certain that my father spoke a long time ago about the prospects of "deep oil and gas". I've always wondered if he didn't run across one of the early pioneers of fracking technology. Dad knew a lot of people in Houston in the 60's and 70's. Dad was convinced of the potiential of our land, and one of the great joys of my life was to help prove him right!

HANG

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Permalink Reply by Skip Peel - Mineral Consultant on February 25, 2019 at 9:22

I appreciate HANG's kind words but feel I should add some detail to this discussion for clarity.  Every case of mineral ownership is unique.  In this case we were dealing with mineral servitude tracts, separate but contiguous and created when the surface ownership was sold.  Ownership in one servitude was maintained by production.  The other had the ten year clock running and about to run out.  Although there was recent development in the vicinity, there were no public record indications that a well would be spud before the ten year prescriptive period and indeed the servitude with no production prescribed meaning the mineral rights reverted to the surface owner.  Additionally there were two missing links in the chain of mineral title.  This is a commonly occurring situation where families fail to file a succession based on the belief that the estate does not have sufficient value to warrant the legal expense.  The arrival of the Haynesville Shale has demonstrated how this can be a mistake.  In this situation there were only single heirs due to a small number of offspring and a death.  The sellers were capable of witnessing for each other should a buyer choose to have a succession filed to complete the chains of title but upon strict due diligence the buyer chose not to.  An additional complicaton arose when the correct mineral acreage interests were checked against the decimal interests on the royalty statements and Division Orders.  The party who was shorted did not wish to pursue a correction and the sale served to correct the decimal interest mistake.

I provide this brief summary to illustrate that mineral ownership and the details of a sale can have some complications which must be worked through to a buyer's satisfaction.  All of the title defects and decimal interest errors were found and documented through thorough review prior to the minerals being presented to a buyer. So, no surprises. Lastly, I wish to make it clear that I did not "shop"  the minerals to multiple buyers.  In the business of providing mineral sales assistance one's reputation is important with sellers as it is with buyers.  Buyer's generally are hesitant to be drawn into an auction searching for the highest bidder.  Any one who acts to represent sellers who uses that business model will soon find that buyer's are not interested in working with them.  I find that the best means to get a fair market price is to be familiar with the preferences of buyers and to match up a seller with a buyer that is a fit.  By that I mean a company known for paying a fair price and closing purchases with the only exception being a failure to find a mineral title merchantable and that has current interest in the area of the seller's mineral tracts.  I always seek to have motivated sellers agree to an acceptable sales price that I feel can be justified to a buyer and that makes for a straight forward acquisition opportunity that can be quickly valued by that buyer.  If that buyer does not wish to acquire the minerals, I move on to the next one on the priority list that I built based on knowing buyer preferences.  A sale of mineral rights can be approached in a variety of ways and in this case I wanted to leave no misconceptions as to how I go about assisting mineral owners who are interested in a sale.  I have eleven years experience and no dissatisfied clients.

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Permalink Reply by lee on February 28, 2019 at 2:45

Skip - with the push for the New Green Deal, do you think now is the time to sell my minerals before it is imposed?  If this program is enacted our minerals will be worth nothing.

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Permalink Reply by jffree1 on February 28, 2019 at 3:43

We need one of those up vote thingys on GHS. ^^^^^

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Permalink Reply by Skip Peel - Mineral Consultant on February 28, 2019 at 4:06

No one really knows what the Green New Deal is at this point.  What is clear is that U.S. business and states are already moving away from coal and, in some cases, natural gas for electric generation.  Oil and natural gas face no threat in the short term but the trend is obvious and irreversible.  Only the time line is in question.

I think all mineral owners should consider selling their mineral rights at some point.  The question of timing is one of value.  If I owned minerals with proven Haynesville Shale, especially if my location was prospective for Mid-Bossier shale, I would be closely watching development.  An interested seller has two best case scenarios.  One is when development appears to move quickly enough to provide the majority of royalty revenue in the near term.  Keep in mind Haynesville and Bossier wells produce somewhere around 80% of their full life production in the first two years.  If that scenario looks likely in the next two to three years, I'd say that is a pretty safe bet.  The second scenario is basically the same as to near term development but is an opportunity to sell when the mineral rights are most valuable before the wells are completed and turned to sales, or shortly thereafter.  Minerals fitting that description are those that buyers value the most for return on investment reasons and bring the most aggressive purchase offers.

I tend to not look further out than a two to three year period because of the uncertainty regarding technical innovations in battery performance and government regulation.  Even modest changes in regulations meant to address climate threats such as incentives to purchase electric vehicles and reestablishment of stricter CAFE standards (manufacturer fleet mileage requirements) can speed up the adoption of EVs (electric vehicles).  If range and charge time capabilities continue to improve, EVs will displace ICE (internal combustion engine) vehicles at an accelerating pace in the next decade.  As solar and storage (battery capacity/performance) becomes less expensive, it will displace natural gas for electric generation and grid management.  I'm afraid natural gas may have missed it's opportunity with the defeat of the Clean Power Plan  which would have displaced coal with natural gas at a time when solar/storage was not such a tough competitor.

No one wants to have a valuable asset such as mineral rights in a proven location to become stranded and lose the ability to be monetized.  Timing of a sale should largely depend on an informed opinion of near term development potential and what the proceeds of a sale would accomplish for the seller at that time.  No one should feel rushed to sell now.  Everyone should feel the need to think about a sale in the future.

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Permalink Reply by lee on February 28, 2019 at 4:19

I wish I had minerals in Angelina County Texas where Blackstone is paying crazy prices.

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Permalink Reply by William C. Morrison on February 28, 2019 at 4:44

Many years ago, mid 1980s, my family sold part of their mineral rights, got a handsome check for them. Then the well they were participating in played out. And the price of oil and gas fell through the floor at the same time. And due to the laws in Louisiana, they recovered their mineral rights after 10 years of non production. Since then we have released three times. Selling mineral rights are not quite the same in Texas or other states, once sold you are generally totally out of the picture. Louisiana has the best state laws regarding mineral development in the nation. And as you can see in our case, selling mineral rights is not such a finality as it would be in say Texas.

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Permalink Reply by lee on February 28, 2019 at 5:53

I have a feeling the way this country is leaning politically these may be the last days to make money on our minerals.  

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Permalink Reply by Skip Peel - Mineral Consultant on February 28, 2019 at 6:22

The politics will certainly have an impact to some extent however it is not politics that is leading companies including energy majors to invest heavily in renewable energy technology.  The market has turned it's back on coal and is headed toward doing the same on natural gas.  LNG export may help support prices in the short term but if solar+storage continues to evolve as it has over the last two years it will soon be cheaper for LNG importing countries to shift to solar.  The time to retire most ICE vehicles will take decades but at some point will weigh on the demand and price of crude.  Oil majors are already looking to chemicals to replace oil demand in the near future.

Has the politics of the last two years saved the coal industry?  No, because coal can not compete with natural gas for electric generation.  The same will happen at some point as solar+storage becomes cheaper than natural gas.  Politics can hasten the evolution in energy but it can not stop it.  The market always rules.

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Permalink Reply by John M Santamaria on March 27, 2019 at 3:17

Just my opinion, but I think people are getting way ahead of their skis on the issue of the demise of minerals and the ICE switch to electric.  Yes I am in the car business and have been the beneficiary of the oil industry in various ways all my life.  I just can't see parking their ICE vehicles and overnight switching to electric cars.  What about all the millions who have just had the opportunity to own a car period in less developed countries.  What always amuses me is people think the electricity comes out of thin air and does not have to be generated by some fuel source.

       My Daddy who was a very wise man used the business philosophy, "take some and leave some."  I think that applies to my feelings about selling mineral rights.  The old saying ,"one bird in the hand is worth two in the bush" applies also.

   Always enjoy Skip's comments and advice as they are the product of knowledge and experience which based on my limited experience are always helpful in some way.  Keep it coming!

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Permalink Reply by Skip Peel - Mineral Consultant on March 27, 2019 at 4:11

Thanks, John.  My opinion of renewables and EVs replacing ICE vehicles is based on my news feed which brings me articles on a number of selected topics.  You will not see the local or national news media cover in detail the innovation and evolution in photovoltaic cells and battery storage.  You might get a little more coverage of EVs. Everyday there is news of a new process or a new technology being deployed in the real world.  The most recent EV news that is good news for those who own one is the deployment of the Tesla V3 super chargers.  A lot of people put range anxiety at the top of their list of EV concerns.  A V3 charger will provide 75 miles of added range on a five minute charge.  ~150 in ten.  The Tesla pick up truck when it comes out will have better torque than an ICE pick up and thus a much greater towing capacity.  All ICE vehicles are more reliable and less expensive to maintain.  Less moving parts mean greater usable life span.  Although third world countries may struggle with generating increased supplies of electricity that won't be a problem in the US or in most developed countries.

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