Disclaimer: I am doing this while watching an old movie on the Civil War on TCM.
Disclaimer: I often make simple arithmetic errors.
Disclaimer: there will be factual and typographical errors on this page.
Disclaimer: the blogger app has embedded cookies. Whatever that means.
Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on anything you read here or think you may have read here.
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.
