Replies to This Discussion

Permalink Reply by HS on July 3, 2009 at 5:45

with activity in the haynesville moving south now , i would not even think about selling, this is a good area
and could be very rewarding in the future. and then who knows , no actual proven in hans right in this area yet there has been some good wells across lake in la

Permalink Reply by Carter on July 3, 2009 at 6:49

Hi Michael, you have come to a good place for information. First, let me give you the short answer: there is no way that I would recommend any friend or family member sale Shelby County minerals for $600 an acre at this time. While I am sure most others on this site would agree with that statement, many will base their opinion on past markets bubbles or unknown and unrealistic expectations. I will try to provide you with an opinion based on analysis and reason.

First of all, I have some questions: Where (survey) is the land located? Is it somewhat contiguous or broken into many tracts? Can all the present family members who might have an ownership interest be found or otherwise negotiated with? When did you receive the $50/ac bonus? Was it a number of years ago? If so, has any company contacted you to lease since? Are the minerals HBP (held by production) by any energy company? Are you getting any royalty checks? The reason that I'm asking this, is that its hard to come to any reasoned conclusion without knowing some of this information, as its all relevant in price discovery, and I am only assuming that you came here in good faith in an attempt to get an honest answer.

An easy rule of thumb for calculating mineral deals is 3x lease bonus. In a hot market with competition and a lot of liquidity, this might escalate to a higher multiple. So a starting point is to determine present lease value. Based on what I've seen the past couple of months, I would say that $400/acre represents fair value in the Huxley area as long as you get a depth clause and a horizontal Pugh clause. Based on this, I would regard $1200-$1500 as the minimum offer I would consider as being somewhat legitimate. Regard hyperbole as suspect and here are some well known facts just to help you summarize:

1. The Haynesville Shale play is widely regarded in the industry as one of the best if not the best emerging plays in the country, and the economics of the play (how much gas you can recover compared to how much it costs to get it) are excellent.

2. Most maps that I have looked at would consider the area under Toledo Bend to be within the core area of the play.

3. During the speculative bubble of 2008, prices for leases in Shelby County, TX reached 5K-6K per acre (there were a few isolated instances of 8K+ bonuses, but these were rare).

4. I do not anticipate prices reaching anywhere near those speculative highs in the near future.

5. Chesapeake Energy, a major natural gas company is currently doing exploratory work in the northeast portion of Shelby County, in an area not far from Toledo Bend. If these wells were to come in big, it would escalate the perceived value of minerals in the area to a much higher multiple.

6. If Chesapeake Energy were to have poor results in this area, it might lower the perceived value of these minerals as well, however since you indicated that you inherited this interest the fixed cost to you is zero to hold. And it is my opinion that the risk/reward is very favorable toward holding.

7. Regard anyone who deals with you and tries to ignore or "downplay" the value of the shale, the value of natural gas in general, or talks about "dry holes" or tries to cast things in a negative light as suspect -- They are merely trying to get between you and the money.

8. Regard anyone who deals with you and claims that the minerals are worth 20K/acre and that they can market them to a very high multiple for you right now, and in general wants you to sign up with them so that they can market your minerals as suspect. They are merely trying to get between you and the money.

9. Many including myself believe that natural gas is going through a bottoming process right now and possibly through the next 6-9 months. I believe it will be a multi-year bottom. This doesn't mean that I believe prices will return to the 2008 bubble, but it does mean that I believe Shelby County minerals will be an attractive investment going forward. Regard as suspect anyone who tells you that they know what natural gas will or won't do, or what the economy will or won't do.

Best of luck to you. Get me some answers on my questions and I will try to be a little more specific.

Permalink Reply by little ole 1st grade teacher on July 4, 2009 at 7:36

Do not, I repeat DO NOT, sell your mineral rights. We have been told that leasing in Shelby County is $500.00 to a $1, 000.00 per acre and that the Haynesville Shale Play should begin in earnest hopefully by October. However, we really thought that by now it would have already been making us money, but none so far. I do believe, however, that it will come sooner or later. So, unless, you absolutely need the money do not sell off the mineral rights. If you do need to sell the land, make sure that you retain ALL the mineral rights.

Permalink Reply by Jimmy on August 6, 2009 at 10:57

Yeah, here we go again. Does everybody realize why this website is here? It is because of the magnitude of the shale. With that in mind, dont allow these companies to take advantage of the economy and slap you with a low offer. Do not let people rob you of your assets, they are yours so dont give them away.
Our family has seen the complete contrast with their offers: from 300 per acre to over 5000 per acre on the same tract! Remember, commision is the salesman's game and jets are the corporate taxi. Dont settle for a new couch while sending these companies to Tahiti for a meeting to talk about your gas wells.