I read on another thread on this site that there was a feeling that offers to purchase minerals were reaching a bubble status- prices artificially driven up by hedge funds from outside CO buying up whatever they can and that at some point, prices will correct themselves. Is this true for Weld as well?
can you give us an example of what a hedge fund is offering in those areas vs. what an operator/producer is offering for that same acreage? 20% increase in the offer? 50% increase in the offer?
Derek
I'm not sure they were comparing the two- just a generalized statement. A gentleman started a thread that he had seen a huge increase in offers to purchase his minerals (1500/acre in the not so distant past, vs. 15000/acre recently). Another person commented on the post speculating that hedge funds were driving up the prices. Make sense?
Reason I ask is because I have been offered $10k/acre for 13.3 net/80 gross acres w/ 25% royalty in Redtail/Wattenburg area. Seems lofty…and it was a person representing a hedge fund who made the offer.
Can you give legals for your property that you received the offer on? I know that 15k/acre in the EastPony/ RedTail Prospect is the going rate. 7k-10k is the price near Greeley and Windsor in the Wattenberg.
Derek
Township 1 North, Range 66 West, 6th PM
Section 16: E/2SW/4
They are offering to pay you 10k/acre on producing acreage that holds a 25% royalty?
There is an old vertical well that is more of a placeholder. No real income being made at this point. I'm not well versed in all of this, but I am assuming the bet is for there to be a horizontal drill someday.
Yes, you are correct about the horizontal wells coming soon. The questions is whether or not the buyer has factored in the existing production in their purchase offer price. I am assuming they have added around $1,000/acre to the offer based on the existing production on the acreage.
So then the offer I received is in line for the area, I presume. Is there a way to estimate income off of a horizontal well? I have absolutely no idea what the potential is there. Trying to weigh out my options here. Thanks for all of the discussion- I'm glad I joined this forum.
Hi, I am joining, since I often work for landowners doing their mineral appraisal all over the basin (and the US). I have NOT seen any prices like the ones you quote here during the last couple of months. The market seems dead. Oil prices are miserable, so royalty income is low, too. So if you have a genuine offer in that ballpark, I would take it. I looked briefly at your location and only see drilling about two miles east by KerrMcGee. Nothing has been planned by permitting near you. See attached official map from today in separate mail.
I know of most of the buyers of minerals, but this one sounds puzzling. Some are syndicators, who make their money on the repackaging and reselling to the uninformed public investors (but they will of course pay top dollar to you in order to have property to syndicate!)
Regards,
John Gustavson, Certified Minerals Appraiser
PS Yes, you can estimate potential income off horizontal wells, but you would pay $500 - up for such, and if no horizontal wells are planned anywhere near your section, why would you spend that money?
Gal from TX said:
1180-TexasGal.docx (449 KB)So then the offer I received is in line for the area, I presume. Is there a way to estimate income off of a horizontal well? I have absolutely no idea what the potential is there. Trying to weigh out my options here. Thanks for all of the discussion- I'm glad I joined this forum.
Thank you for the input, John. I really do appreciate it!
In thinking about it, it may be worth paying $500 to be able to feel like I made an informed decision. If there are not permits pending to drill on our property- it doesn't mean that there won't be some time in the future. Maybe that is not a correct line of thinking. Knowing there is activity 2 miles away- I would think that sounds promising. But of course- the million dollar question is what oil is going to do in the future. There has been a short term uptick- we don't know if we've seen the bottom. But again, I am a novice.
The other issue I would have is establishing cost basis. My father died in August 2014, and shortly after his passing- I received an offer of $14k/acre. The problem is- the trust which previously held these minerals had them appraised- and it came back valuing them as worthless (based on the current income, not fair market value). One gentleman I was dealing with offered to put together a letter showing fair market value at the time of my father's death, and I would actually be coming out with a capital loss. Would need to run that by my CPA though.
John B Gustavson said:
Hi, I am joining, since I often work for landowners doing their mineral appraisal all over the basin (and the US). I have NOT seen any prices like the ones you quote here during the last couple of months. The market seems dead. Oil prices are miserable, so royalty income is low, too. So if you have a genuine offer in that ballpark, I would take it. I looked briefly at your location and only see drilling about two miles east by KerrMcGee. Nothing has been planned by permitting near you. See attached official map from today in separate mail.
I know of most of the buyers of minerals, but this one sounds puzzling. Some are syndicators, who make their money on the repackaging and reselling to the uninformed public investors (but they will of course pay top dollar to you in order to have property to syndicate!)
Regards,
John Gustavson, Certified Minerals Appraiser
PS Yes, you can estimate potential income off horizontal wells, but you would pay $500 - up for such, and if no horizontal wells are planned anywhere near your section, why would you spend that money?
Good idea to talk with a CPA, because you probably have to file a Federal tax return including the Market Value at your father's passing. Sorry about your loss! I do many appraisals for that sad reason.
Note that parties, who estimate erroneously low values, are subject to being charged with a felony under IRS rules. The fact that you had an offer (in writing?) of $14k/ac is tough to by-pass.
However, discuss with your CPA the possibility of using the Market Value of the estate 6 months after your father's passing. That value will be substantially lower. Worth asking him/her, because I am no accountant or attorney.
I cannot promote or discuss my business in these blog pages, but I am easily found on the internet (and on the WANTED poster on the wall in the post office!)
I would tend to agree with John here. $10k/ acre is a pretty remarkable offer for this area. With that said, your royalty payments over the course of 5-10 years, will most certainly pay out larger than the current buy offer. The question is whether or not you can take the risk and hope drilling happens on your property. With the current uncertainty in the viability of US shale, and the certain restructuring of the producers' capex in 2016, at least selling half of your interest at this price might be a good idea.
Derek
Appraisers are notorious for being stupid about mineral rights. And especially estates where the value of the mineral needs to be valued - A- for IRS purposes if taxable as estate taxes and B - to see a cost basis for the heirs so that they do not pay capital gains upon 100% of the property.
As for values, I've seen companies buying property from other companies from ~ $10,000 to $40,000 an acre. OK...remember they are buying the part not owned by the royalty owner, aka the working interest and that is say 75 - 85% of the potential income, therefore, the mineral owners share TYPICALLY would be say 20% or less of that figure....but if a favorable 25% lease, it could be more. You might find some other sellers and see if they disclose what they got...and make a judgment from there. I would be reluctant to sell my mineral rights, but when the offer gets "too high", I would have to consider pulling the trigger.
Gal from TX said:
In thinking about it, it may be worth paying $500 to be able to feel like I made an informed decision. If there are not permits pending to drill on our property- it doesn't mean that there won't be some time in the future. Maybe that is not a correct line of thinking. Knowing there is activity 2 miles away- I would think that sounds promising. But of course- the million dollar question is what oil is going to do in the future. There has been a short term uptick- we don't know if we've seen the bottom. But again, I am a novice.
The other issue I would have is establishing cost basis. My father died in August 2014, and shortly after his passing- I received an offer of $14k/acre. The problem is- the trust which previously held these minerals had them appraised- and it came back valuing them as worthless (based on the current income, not fair market value). One gentleman I was dealing with offered to put together a letter showing fair market value at the time of my father's death, and I would actually be coming out with a capital loss. Would need to run that by my CPA though.
John B Gustavson said:Hi, I am joining, since I often work for landowners doing their mineral appraisal all over the basin (and the US). I have NOT seen any prices like the ones you quote here during the last couple of months. The market seems dead. Oil prices are miserable, so royalty income is low, too. So if you have a genuine offer in that ballpark, I would take it. I looked briefly at your location and only see drilling about two miles east by KerrMcGee. Nothing has been planned by permitting near you. See attached official map from today in separate mail.
I know of most of the buyers of minerals, but this one sounds puzzling. Some are syndicators, who make their money on the repackaging and reselling to the uninformed public investors (but they will of course pay top dollar to you in order to have property to syndicate!)
Regards,
John Gustavson, Certified Minerals Appraiser
PS Yes, you can estimate potential income off horizontal wells, but you would pay $500 - up for such, and if no horizontal wells are planned anywhere near your section, why would you spend that money?
Well- I will reiterate how glad I am to be a part of this forum! My questions are evolving and honing in on the real issue. This forum gives the "little guy", like me, a conduit to find answers. Otherwise, I would have no idea where to start. TL- you hit the nail on the head- that is the reason for my original post- to see if the offers I am receiving are in line with the area, if there is a feeling that these numbers are inflated, deflated, fair etc. So if anyone recently sold in the area, or have had serious offers- please post here or send me a message if you are not comfortable posting publicly. I have no other way, besides this forum, of reaching that answer. Which is why I would consider paying for someone who has the tools and resources to help me figure out if what I am being offered is fair or not. My brother and cousin, who also have 13.3 net (80 gross) each, are also seriously considering selling. I am heading up the research, you could say. Thanks to everyone who has responded.
I tend to agree with John about pricing, my expeirence that leases and minerals are now less then 50% from 1-3 years ago. I know offers in prime DJ with Horizontal wells permitted are going for $500 per net mineral acre.
Jason,
When you say prime DJ acreage, which specific part of the DJ are you talking about?
Thanks,
Derek
What kind of production is being seen out of horizontal wells in terms of barrels per day in this area? How long do these wells sustain themselves? It looks like from the map that was provided John, that there are some horizontals close to me. Seems like a good sign.