My brother and I each own 12 .5 acres of mineral interests in Carter Cty OK 26 04s 02e currently leased at 3/16. Recently we both have been receiving offers to purchase those leased rights from: a few different people, only one actually offer has a price, 650 per acre. My problem is I am not familiar with oil interests, we inherited the 25 acres when my father passed away. If I did not sell and the company who has the lease right now drills and produces oil how long would it take to earn the roughly 8100 dollars they are offering me? I realize every well produces different amounts of oil but is this something that I could make within a month, a year, or would it take 5 years or more? II honestly do not know the value of what I have since I did not purchase it in the first place, can anybody please give me advice?
Joe, I have no idea what the going price is for non-producing minerals in your part of Carter County, but generally, as with anything, the first offer generally does not represent market value, so my gut is $650/acre is too low. I make mineral and royalty interest loans, for individuals that need money, but prefer to sell their interests. In order to make these loans I have to value the property so that I'm not at too great a risk if I end up foreclosing. My rule of thumb for conservative valuation is 50 times monthly revenue for producing royalties and 3 times the bonus paid for non-producing minerals. So, in your case, I would take 3 times the bonus you received, and that would be a minimum value.
I'll give you a simple range, based upon the following assumptions (I don't know your royalty, but will use a conservative 3/16, you can adjust the time to recover down if the royalty is higher and vice versa:
1. Well produces on average 75 bbls per day over 5 years
2. Unit size is 640 acres
3. Avg price of oil, less oklahoma production taxes, $87.50 per bbl
With these modest estimates, producing mineral generates $8771 in 365 days of production. So, consider a payout in 1 year.
Your interest is definitely worth more than $8100. Try 3-5 times that.
That was exactly the information I was looking for, thank you very much, I really appreciate the feedback!
Joe I have been offered $5,100 per acre for my mineral rights. I wouldn’t sell except under the most dier circumstances. I have leased my minerals everytime they came open since I was 16 and I am pushing 68. The call is yours of course. Good luck
Thank You Ronald, my dad was from Oklahoma but I’ve lived in Wisconsin my whole life so anything related to mineral rights is completely new to me! It’s something we had never talked about and I really wish now that we did!