Does anyone here know how the buyers of royalty rights determine the price per acre? I have been offer $3000.00 per NRA in Eddy county New Mexico, Sec 23, T21S, R26E. Any insight would be greatly appreciated. Merry Christmas all!!
M
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Different buyers have different strategies. Some buy right before the bit. Some want a quick flip. Some want to buy and hold. In general, many will buy before the bit and they will pay for current production at a payout of three to five years discounted for the time value of money. What they won’t tell you is that more wells are coming as that is how they plan to make a profit. Some buyers make a profit while some do not. No standard answer.
My advice is DO NOT SELL your mineral rights in Eddy County NM. it is HOT out there for drilling. Sit on it!
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Thank y’all for the reply.
I do a lot of buying/selling/valuations for both minerals and working interest. The basic idea behind the mineral valuation is you have two ways for a mineral tract to have value: currently producing wells and future wells. The currently producing wells bucket is pretty easy, just use historical production and forecast it out over the next XX years. For future locations, you can get a basic idea of well densities by looking at offsets. The more difficult question is timing… when (if ever) are those wells going to be drilled. Once you have an estimate for that, it’s just a matter of discounting back the cashflows and dividing it by total acres. It’s obviously a bit more complicated than that, but that’s the idea. How much is it currently producing, how much could it produce in the future.
And without knowing anything else, would tend to agree that $3,000/acre in Eddy County seems a bit low.
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Thank you very much for the insight. They have been producing but when the price dropped several years ago some of the wells were shut down. They have done that a couple of times but when the price goes back up they open them back up and there is a pretty good windfall. In your opinion how many years should I go back and calculate to determine a better idea of the value. Again I do appreciate your time and insight
M
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