Considering Selling Mineral Rights

[Lance_Pederson]

Recently considered selling my mineral rights. Im at a loss for even knowing where to start. I attempted to research “The going rate” in the area where the minerals are located to no avail. There are a few wells that are producing on the sections. 159N95W s13 & s24. I’m confused as to the prices I HAVE found offering X$/Acre. Is that per net acre, or per mineral acre? Ive also seen numbers anywhere from $1000/per to $8000/per… it IS confusing, and to make any kind of decision will be worse. And, though production of the current wells have fallen off over the years, to me there is still an enormous value for future production not only to me but any future buyer. I’m not concerned about how long it will take them to profit from a sale, so I can hold till I breathe my last breath. I have had offers before 8-10 years ago, but how does that hold up today? I get it, buyers want to snatch it up for dirt cheap. But my loss/gain can be interpreted from both sides equally. I’ve researched drilling permits in the area which there are few. But thats probly because they are already grabbed up. What if another boom comes along, what if these wells are re-fraccd, what if some new fangled technology makes drilling half the cost and barrels twice the price? What im getting at is that i havent the slightest clue what my mineral rights appraise for or even where to begin. Any help would be appreciated. Or if youve sold some in the area, let me know what I might expect…

TIA

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[M_Barnes]

Your offers will depend upon your royalty, volumes yet to be produced, product prices, any potential new reservoirs, the strategy of the offering company, etc. Some offers are by net mineral acre and some companies use the term “net royalty acre”. That is fairly useful because it normalizes acreage to 1/8th royalty.
For example, if you have 10 acres at 1/8th royalty, then you have 10 net royalty acres. If you have 10 acres at 1/4th royalty, then you have 20 net royalty acres.
The equation to figure out what you have is net mineral acres x royalty x 8. Example 10 x .25 x 8=20. 10 x .125 x 8 =10. 10 x .1666667 x 8 =12.333333 I used the last one because 1/6th royalty is very common in ND.

You can find your wells on the North Dakota oil and gas division website. https://www.dmr.nd.gov/oilgas/ The main site is free. You can join for a year for $50 and get much more information on your wells such as production, decline curves, etc.

Here is a picture of them.

I have a subscription, so I can see that your Lawrence 7-24H2 well (surface location in 25) has this kind of decline curve.

Lawrence 11-24H1 looks like this.

You can see the shut-ins during 2019 and 2020. Buying companies look at the production curves from every well. (Hunt for yours in sections 25, 24 and 12 by surface location. Watch which direction the wells go in 12 as some go north.

Buyers determine what the total volumes will be for the life of the wells (given no difficulties) by projecting declines out into the future. They then determine the value of the oil and gas by current prices and discounting the future value of money (10% is commonly used). Then they decide what percentage of that will be their offer. Some companies only buy currently producing wells, others buy current and if there are known wells about to be drilled, they may pay extra, others don’t. If there other possible reservoirs, they want them, but they may not pay you for them…

Your offers from 10 years ago don’t mean much in today’s market. Wells have been drilled, more is known, financing money is much tighter than it was before. Operators have to live within their free cash flow versus the growth mentality of the past.

There are firms out there that will give you an evaluation of acreage (for a fee) and then you have a basic idea of what it is worth as of a certain date. Then you can have a feel for if an offer is about right, a bit less, a bit more, etc. If you decide to sell, suggest that you get several offers or use an auction house (will also charge a fee). Talk to your accountant about possible capital gains taxes, etc. Consider your heirs, consider investing your royalties in other potentially growing assets, etc.

[M_Barnes]

The Decline and Fall of the Bakken: The Red Queen Collapses | Art Berman

You might find this article interesting. If it won’t open, then type the title into your browser and see if it will open that way. Other articles out there discuss the Bakken and its potential, takeaway capacity, coming out of Covid, etc.

[oklandman]

You mentioned a lot of “what ifs”, if new fangled technology makes drilling half the cost, almost 0% chance that price of bbls doubles. Easier/cheaper to produce, more wells/production come online, prices go down, Supply and demand. I’d try to get in contact with a professional in your area to get an idea of prices around you. You can definitely hold onto it, but for a company to buy it, they aren’t going to price in a bunch of “what ifs”, you go bankrupt in Oil and Gas if you invest in “what ifs”.

[Lance_Pederson]

I’m pretty aware that what ifs aren’t a consideration when valuation. I’m not new to the oil and gas industry. I’ve worked within it for years up until about 10 years ago I’m just new to property valuations. I know nothing about it. In fact, I helped build the treater house, and insulate the lines and tanks on the first well I started getting royalties from. Lawrence 1-24h. I thought that was pretty cool. Then, I was a Gas plant operator at the Norse Plant north of Mcgregor that processed the gas from all my royalty wells. I’ve learned plenty about the industry over the years. I’ve just never payed much attention to the cash side of it. I find it hard to believe there isn’t a single “seller” on these forums that doesn’t already atleast have a general idea. I suppose, if they are post sale they are probly no longer paying attention to these forums. So no luck for me.
Appreciate all the information none the less.

[TODD_M_Baker]

A general idea is 60 times your last months check. But valuations are always subjective. You need to have a price in mind that you think is “fair” and try to find a buyer that will pay that. Using formulas & a calculator you can arrive at any valuation you want.