Hello,
My brother and I came into some mineral rights via probate from an uncle. This is in Stephens: 33-1N-5W. We have received an offer from a firm to buy these rights. We really know nothing about mineral rights and would be happy to sell, but want to be sure it is at a fair valuation.
If this were a house, we could get it appraised – is there something similar for mineral rights?
Are there reputable firms who help broker such sales?
Thanks,
K
Keith, you should probably do a lot more research before deciding to sell. You need to know if there is any drilling activity in your section or nearby. Future income could be much greater if you lease your mineral rights instead of selling. Do you know the current status of the section? Is it leased, is there any current oil and/or gas production? Don’t throw away long term wealth for short term cash.
Keith, the first question I would ask myself is how the exposure of these mineral rights fits into my portfolio, then I would make a decision based on that. A healthy portfolio consists of oil and gas exposure If 90% of your wealth is tied to these minerals, then you may want to think about diversifying out of the minerals but not completely (just as you would any other asset per modern portfolio theory) but if you are adequately diversified, then it may be worth holding on to these assets.
As for value, there are different ways to go about it. A quick and easy way is to look at comps and precedent transactions. If you want to take a deep dive you can look into DCF/NAV calculations, real option pricing, LBO models, etc…
You have a VERY nice gas well on that property that may produce for a long time. Do you have the well in pay status to you both? You need to contact the operator (Marathon Oil Company) and let them know that it has passed to you. There is the possibility of more wells in the future, so do not sell until you really understand what you have. Since you just inherited, did the executor of the estate give you a value of the well? They should have because it should have been part of the probate. If not, there are engineers that can do that for you. When you have the value of the first well, you can decide if future wells are worth hanging on. If I had that well, I would hang onto it, use the royalties to invest in other portfolio options and wait a couple of years to see if more wells get drilled. I can pretty much guarantee that the offer you received is not going to be what the acres are really worth.
Where did you look up the well to see that it’s a property that might produce for a long time?
If there are engineers that can do a review of the well (wells?), what is a ballpark cost for this? Something that is $300 is probably fine, but if costs $3,000, well that’s another matter.
I will need to find all the paperwork that the attorney sent and read through it again.
As for royalties, so far no has contacted my brother or I about arranging sending royalties to us. The title was changed to us in Dec 2018 or Jan 2019, so it hasn’t been too long.
That’s what I’d like to start doing – research. But we aren’t even sure where to begin. We know nothing about mineral rights. I’m sure this first offer isn’t a fair offer, but I’ve no way of actually knowing it.
For one well like this, it is more on the $300 side.
You will have to contact the operator about getting into pay status. They will not contact you because they do not know about you. It is the mineral owners responsibility to do that. You will need the probate information to prove that you are the correct title holders now.
I use a subscription service where I can see all the production, but you can look it up on the OK tax site. It will give you the last 12 months of production. Gross Production
You can see other information about the well on the Oklahoma Corporation well records site. Test. Type in 3301N05W in the legal location box. Peggy 1-33H. The permit is Form 1000. The spud in 1001A. The completion report is 1002A. I am a geologist. I could tell from the report that with that flow rate, pressure and choke, it is a very good well. The production history has shown it to continue to flow nicely. Marathon’s address is on the completion report.
Since you are new to mineral ownership, start with reading the Mineral Help tab above. Read the topics in Stephens county so you get a feel for what is going on. Read the investor presentations for Marathon Oil, Newfield (now Encana), Continental Resources, etc. as they are the main players in your area. See what they are saying about future drilling plans. Please do not rush into a sale until you really understand the value of what you own. By then, you might want to hang onto it!
You received some really good advice from these other forum members. One other thing you might consider is the amount you would have to pay in taxes if you sell these minerals only having owned them for a short time. We sold one piece of royalties in a section recently in Stephens Co. for what we felt was a really good price The taxes are going to be very low because we have owned it long enough to be a long term capital gain but on something you have owned for a short time I believe the taxes would really eat into you profits. I’m definitely not a tax expert but also got some good advice from the other forum members and talking to our accountant before making the sale.
Keith, I am a retired petroleum engineer. M Barnes is correct that it should be more in the range of $300 +/- to evaluate the your mineral interest.
My thanks to everyone here – you’ve all been very helpful!
Time for my brother and I do do some reading and research!