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Finally, the note.
This seems pretty straightforward, though I do make simple arithmetic errors and don't completely understand royalties and mineral rights.
But let's see where this leads.
A reader sent me a note saying he/she had been offered $5,333.33 for his/her interest in mineral acres in the Bakken.
The facts (a reader writes):
- the reader has 16.67% base royalty in 1.0000 net mineral acre in the NW quadrant of section 16 in T155N-R100W
- the reader is being offered $5,333.33 for that interest
- this particular mineral unit is located in the "best Bakken"; having said that, there are even better areas in the Bakken)
First step:
- the reader has a typical base royalty in this mineral acre: 16.67% or one-sixth (in fact, one-sixth is pretty good; in the "old days," mineral owners typically received one-eighth)
- the buyer is offering $5,333.33 for that one-sixth interest in one net mineral acre
- therefore, one net mineral acre would be valued at $32,000 (6 x $5,333.33)
- to repeat: one mineral acre in the best part of the Bakken is being valued at $32,000
- one net mineral acre: $32,000
- the standard drilling unit in the Bakken is 1280 acres
- a standard 1280-acre drilling unit is valued at $40 million (rounded) ($32,000 x 1280 acres)
- Bakken light, sweet is currently trading for about $40/bbl
- the number of bbls to yield $40 million = 1 million bbls
- current EUR in the best Bakken: 1.5 million bbls / middle Bakken well
- I will let readers sort this one out.
We have a couple of acres in 155-100-16 and in yesterday"s mail it was $7000/acre. In the last week - 3 offers from $5500 to $8500. Zavanana is doing a 6 leg drill there and just about to TD. Should be fun to see what happens. Not expecting to retire on it!!
ReplyDeleteVery interesting. I would assume the difference in price per acre (if same drilling unit and everything else the same) might have to do with the base royalty. Regardless, we're now seeing what an acre in the Bakken goes for.
DeleteI just got an offer of $9000.00 an acre and I own a little less than three mineral acres (152-92-14/25,Big Bend),but only wanted the acreage in the southern most area. My inclination is to keep the rights,since Slawson has a dozen wells planned for the sections and several more for overlapping spacing units just approved. Like many,won't retire,but it's the best pay raise I'll get for years....great job on the blog Bruce,cheers...
DeleteActually, I think many of the buyers are carpetbaggers and are just looking for anything.
ReplyDeleteBuyer beware. In this case, "seller beware."
DeleteThere are so many factors to consider. But it certainly helps to at least understand enough to not be taken to the (carpet) cleaners.
By the way, the Bakken is so much different than the old conventional basins. For one thing, it is almost predictable how many wells will eventually be placed in any given drilling unit, based on location and other wells already drilled. At least the minimum number of wells likely to be drilled on any given drilling unit. That's a big help.
DeleteIn addition, $40/bbl is about as low as one should expect oil to trade for -- yes, I know it can go a lot lower, but the tea leaves suggest a floor of around $40. Knowing the floor helps estimate the minimum value.
Yes, it's very interesting -- I used to think it was an easy choice -- not to sell -- but everyone is in different circumstances. But the tea leaves suggest a lot more wells are going to be drilled than folks might think. By the way, Slawson has outstanding good wells: good for you. If you don't need the money now, I think you will be very happy holding on to your minerals.
Delete