I notice you have a toolbar on mineral rights. I have a question that maybe you or your well-qualified bloggers can answer. I have three (3) mineral acres under a well south of Tioga. The well is about a year old and royalties have been running about 50 bucks a month. Two years ago a mineral acquisition firm offered to buy for $500 per acre. One year ago they upped to $ 1,100. Now they have offered $3,000 per acre.This is about 15 years of royalty and I don't understand its worth. Is it possible that a pooling or unitization plan for the Bakken in the future would make these minerals more valuable?Let me know what you think.
My 2 cents worth: never sell minerals unless you really, really need the money or have another investment opportunity with that cash. Lease, yes; sell no. But I am inexperienced in this arena.
In addition, the area south of Tioga is "huge." I think bonuses of $7,000 could be expected in this area based on what I've seen in recent auctions. Possibly more. I think south of Tioga is better than southwest ND and the record in auction was $14,000/acre in southwest North Dakota, if I remember correctly.
Do not sell!!! You will lose big if they drill more wells on your spacing unit which they probably will eventually since you already have a producing well.
ReplyDeleteSounds like you have a single well. One day you may have 8 or 12 or 20.
ReplyDeleteWells depending on the layers And spacing. Do the math with similiar royalty thenn decide: I would gladly offer you a few hundred more.... But I'm a nice guy and wouldn't do that.
I agree with the previous two postings. I sounds like you have a single well, but, at least with the company working our land, they are talking at upwards of 8 wells with more possible depending on changes in tech and what they find with layers in the Bakken. We hear of new and exciting discoveries all around all the time, don't count yourself out at this point. As a well placed proverb puts it: a bird in the hand is worth two in the bush. If anything the rise in cost should tell you something about the land... if they offer you 3,000 an acre, their probably expecting to get 6,000 + or more out of it in the future.
ReplyDeleteI agree (as noted in my original post): lease, but don't sell.
ReplyDeleteThe only thing that might come into play/decision making is the fact we are talking only three mineral acres. Three mineral acres is never going to result in a huge fortune. One could take 30 years of royalties now (if one could sell for $6,000/care) which is probably better than a small amount each month for the next 30 years.
But that's about it: the small number of acres might need to be taken into account. I don't know where my cut-off would be, but probably at 10 - 30 acres.
Your answers make sense. I've had the same question--I couldn't understand why companies have offered me so much money for my oil rights when, based on the first (5-month) royalty check I anticipate receiving this month, it looks like it would take years to recoup their investment.
ReplyDeleteBased on your answer, what is the current likelihood that oil companies will drill more than one well per spacing unit? Two different oil companies (Brigham and Newfield) have obtained permits for up to 8 wells on each of two spacing units our farm is located in. Yet, I don't see any of the surrounding spacing units that have more than one or maybe two wells. Is there a timeline for returning to previously drilled spacing units? Our well is considered an above average producer. I know there aren't hard and fast answers for questions like these, but if anyone has a crystal ball... :)
As long as one well is producing, that spacing unit-lease remains in force. This is called "held by production."
ReplyDeleteAs long as the well is producing, no matter how little, the operator can delay drilling a second well on that spacing unit.. However, in good Bakken areas, they will probably drill sooner than later.
Whiting has already put in five or more wells in some of their Sanish acreage.
In the core Bakken, there will be at least 8 wells per 1280-acre spacing unit, and before it's all over, perhaps more.
Check out the monthly dockets to see how many wells operators plan to put on a spacing unit. Permits are good for a year but easily renewed.
KRS Says... Here is how I value 1 mineral acre, on a 1280 spacing . 1/1280 =0.00078125 times royalty (say .16666= 0.00013020312) times production of the well (600,000 for 16 years)= 78 barrels times $95 (probably low)= $7,418. Then if they drill 6 laterals per spacing unit (1280)= $44,513. There are 11 known pay zones in North Dakota and if they drill only 5 of them @ 600,000 bbls per zone I come up with a vallue of $222,600 per mineral acre. Using a present value of a dollar chart at 5%interest= 0.45811 @ 16 years = todays value at $102,000. You can add about 5% to these values for the natural gas sold also. A lot of variables are not included here like The 95 dollars I used,( can't imagine it would be that in 16 years0...also the technology changes almost mnonthly for extracting more oil so....these figures can only go up in value. Still want to sell your mineral acres for that paltry sum? dON'T DO IT!!!
ReplyDeleteI get those offers all the time. They usually come with a self addressed stamped envelope. I toss the offer, slap a label over the address and pay my bills on their 44¢ -- thank you very much! Don't sell!
ReplyDeleteHow interesting! I do the same thing with those return envelopes with 44-cent postage on them. I love it.
ReplyDelete