Sale of Minerals
I keep getting offers to buy my minerals in DeSoto Parish (Spider field with old Haynesville shale wells - still lots of potential). The offers are $8000 plus per acre (I have a 20% royalty - for 25% they will pay $10,000 an acre). What do they know that I don't? They want to give me ~$2 million, on which they will earn nothing until the property is drilled. There must be one heck of a return on the investment. Anyone have thoughts?
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Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
Yes, Lawrence, I have thoughts but to inform them I need to know the section-township-range location of the minerals. Considering that the majority of early Haynesville horizontal wells left about 95% of the reserves intact (Spider Field has proven Haynesville and Bossier shale), yes it makes for an impressive return on investment. And mineral buyers much prefer wells that will be drilled and turn to sales next year when nat gas prices are projected to be significantly better.
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Permalink Reply by Lawrence Silver on
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Thanks, Skip. The minerals are in Section 25, 12N-14W, Section 30, 12N-14W, Section 31, 12N-13W, and Section 36, 12N-14W.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Lawrence, I haven't seen better mineral rights than yours in a long time. I like all your sections. In 12N-14W, Section 25 has only the original unit well and no applications currently for new wells, Chesapeake can hold off on drilling until sometime next year if they choose; Section 30 is undeveloped for the Haynesville/Bossier but Comstock has a Field Order for 3 long lateral HC wells that include 30; Section 36 has only the original unit well with current reported production of 21,273 mcf/month, Chesapeake can wait until next year for new wells here also. Section 31 has only the original unit well and no applications currently for new wells, currently reported monthly production is 1303 mcf/month, GEPH II will need to drill new wells in the not too distant future.
$10k/acre is $5000 per royalty acre at a quarter royalty. A one fifth royalty would therefore be worth $4k/acre. I'd say your minerals are worth somewhere between $6k to $7k per royalty acre or $12k to $14k per net mineral acre. I don't see this as a fair market offer. More of a fishing expedition. I would decline the offer.
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Permalink Reply by Lawrence Silver on
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Thanks for the advice, Skip. Great information. I believe I'll hold on.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I think that's the best course for now. I don't have an issue with those mineral owners who care to cash out. 100% or some fraction thereof. I simply don't want them to do so at values less than what I am seeing as current fair market sales prices.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Mac, mineral buyers talk to mineral owners in $ per net mineral acre. They talk amongst themselves in $ per royalty acre. The concept of a royalty acre has been around a long time in the business because it combines the net mineral acres with the royalty fraction in the lease. A royalty at a one eighth equals one royalty acre per net mineral acre. For many decades one eighth was the standard royalty in the vast majority of O&G leases. So if your royalty fraction is one quarter, twice one eighth, you would have two royalty acres for every one net mineral acre. If your royalty was one fifth (.2/.125), you would have 1.6 royalty acres per net mineral acre. Obviously, the same net mineral acre is more valuable at a quarter royalty than at a one eighth or one fifth royalty.
Mineral buyers want to keep things simple and not confuse mineral owners. That's why offers such as the one Lawrence received state at price, in this case $10,000/net mineral acre, "if you have a quarter royalty".
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Permalink Reply by Skip Peel - Mineral Consultant on
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You're welcome, Mac.
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Permalink Reply by Russ Michaud on
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I have an offer to buy my 20% royalty interest in the minerals for a little over $8,350/acre in Section 22, Township 17 North, Range 15 West in Caddo Parish. Getting a LOT of pressure to sell. From the high pressure and reading other posts here I am thinking this is a low ball offer and I should probably hold out for a while. I have blown past a few of their offer deadlines already and they keep extending them. Any estimate on what a fair value would be for this?
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Permalink Reply by Rock Man on
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How many net mineral acres do you own? The larger the size of your asset, the more it pushes up the theoretical value.
Not all tracts in the same area are created equal.
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Permalink Reply by Russ Michaud on
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The lot is 14.36 acres
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