I was offered average production income (from last year) x 5 years for purchase of mineral rights in area with a producing well. Is this a reasonable offer or how is the best way to determine what the mineral rights are worth? Thanks!
Morning. I’d need a little more information before giving you my full two cents.
5 years of production on its face is a pretty fair offer. You are taxed regular income on royalties, a sale constitutes a one time long-term capital gains tax, which for most is 15%.
Is your interest already paying royalties, or are they stating what they are offering is based off nearby production? If you are already producing, I would want to know if there is additional permitting that may increased your payments in the next year or two.
Yes it is actively producing and has been for at least the last two years that i was able to get statements on. However, the revenue is lower this year than it was last year. (I am trustee for mother’s trust and know very little about any of this). How would I find out about additional permitting? Anything else I would need to be aware of? What is the value of mineral rights that are not producing? We also have two more rights that are not producing and wanted to sell all, but he is not interested in the non producing ones.
Many offers come when buyers “know something” and they are pretty sure that activity is coming. In general, I have been offered a range from 4-7X previous royalties in TX and OK. Depending upon where your minerals are located, many buyers will offer a discounted amount for the current production for so many years. They will not tell you about any future drilling as that is how they plan to make a profit.
If you feel comfortable sharing your state and county and abstract or section, township and range, folks on the forum can give you an idea of nearby activity. Then you will have more information to help with your decision.
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@Itsme , echoing what others have said, if you provide us with the location (even down to the section or Abstract (in Texas), someone here will research what’s going on nearby. I agree with @M_Barnes about the seeming fairness of the offer. Personally, I only sell when the offer is crazy good, which in my experience has been over 100 times the average monthly income. With that metric, I’ve rejected many more offer than accepted. Obviously you need to take into account any new drilling activity in the area.
It is Dewey County Oklahoma SW/4 Sec 1 T16N R14W. Let me know if anyone knows anything please. Thanks. @Donald_Skotty @M_Barnes @WVOGM
I agree with Ms. Barnes. Offers aren’t generated at random. The prospective buyer probably knows something that you don’t know. It seems to me that the prospective buyer is offering you 20% APR interest on your principal (your minerals) for five years and at the end your principal disappears. Someone from this forum will probably research your section and post their findings. It seems to me that in OK, multi-sectional drilling runs north to south or vice versa so sections 12-16n-14w and 36-17n-14w should come under more scrutiny of the 8 sections which touch your section. You can email the OK Corporation Commission: [email protected] and ask for permitting activity in and around your section. I haven’t used their email, but I have spoken with them at 405-521-2613 and they’ve been nice.
Is there a business/trust purpose related to the sale of the minerals? The management of mineral properties can be frustrating to those that do not have a deep background in oil and gas. After a few decades in this business I have developed a practice of only considering a sale when you believe the offer is astronomically high, but then perform an exam of what is happening around the property. A sale on a cashflow multiple can be a deceiving basis. With that said, I have not sold anything in well over 30 years. If these are the only properties owned by the Trust and the administration cost is high, then possibly consider a sale if such will lower that cost and provide the capital required for the beneficiary. Good luck to you.
There is a fair amount of leasing that has been occurring in the past 12 months (orange pies), and there is one well permitted (yellow diamond) 1 mile to the west of your minerals. Corlena is the operator of the permitted well, and they have leased near you.
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It’s pretty much a matter of inheriting the mineral rights and not knowing anything about the industry. We need to file the deed distributing to the heirs, and this offer came in. This is the last piece the trust needs to distribute and we should be done with the trust administration.
You can distribute to the heirs and then let each one of them decide what to do with their part. Always wise to get up to speed with activity and potential future value versus jumping at the first offer. Offers often precede the drill bit.
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