Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on February 9, 2023 at 12:27

Todd, the WI deals that I have done have had a much wider value range across multiple prospective buyers than deals for mineral rights.  First, the universe of potential buyers is much, much smaller for WI than for mineral rights.  Then you have to consider a much higher risk factor.  It is somewhat rare for HA wells to have big problems but when they do they can run up big costs quickly.  There are some similarities when it comes to remaining reserves and timing of new wells.  I've seen some WI value projections from PEs that were nowhere close to the actual production and revenue.  Each deal is unique.

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Permalink Reply by todd graham on February 10, 2023 at 4:40

Skip: thanks for the reply. I have sold royalty interest before and understand that process and valuation assumptions. I also understand that with WI there is risk involved. Costs are often unpredictable and not capped. And for that risk, there is significantly more reward. SWN is drilling four new wells, and I have inherited a small working interest. Understanding that the universe of potential buyers is smaller than for ORRI's, I am looking to sell the WI participation in the four wells (I believe they have started one already), and I am attempting to better understand how to value this, given all of the above. Is there a "customary" valuation vs AFE amount (i.e. a ratio) that can give me a ballpark idea? Is it reasonable to expect that projected return is between 3X and 4X of capex, and if I discount that return for the inherent risk involved that I will get to a somewhat reasonable value? 

Thanks.

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Permalink Reply by Skip Peel - Mineral Consultant on February 10, 2023 at 5:31

Todd, each deal is unique.  To have a better idea, it would take more specifics as to the unit and the SWN wells.  If by "customary" you mean an industry standard, I don't think there is one.  I think that each potential buyer has their own set of value metrics.  The last WI deal that I previewed received offers from $1,700,000 to $2,300,000.  I think it is fairly obvious that those offers were taking the same available data and applying different variables to come up with that wide offer range.  I think a "reasonable value" is what a buyer will offer that a seller finds acceptable.

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Permalink Reply by todd graham on February 10, 2023 at 5:50

skip: thanks for the input. Could we discuss this directly? happy to give you more details and would really like to hear your thoughts. 

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Permalink Reply by Skip Peel - Mineral Consultant on February 10, 2023 at 6:24

I posted a message to your page with my email address.

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Permalink Reply by todd graham on February 13, 2023 at 10:12

Thanks, Skip. I sent you an email.

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Permalink Reply by Skip Peel - Mineral Consultant on February 13, 2023 at 11:47

Got it, Todd.  Thanks.

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