I have an oil & mineral lease executed that goes to 2017. We have 1/4 royalty interest.
Does anyone know how one can go about estimating what average future leasing potential and royalties might be vs. an offer to sell your mineral rights? I have heard it is generally not a good idea to sell but there must be some sort of model people use to evaluate the value of potential lease/royalities vs. a sale price. Any suggestions would be greatly appreciated.
I would also be interested in others comments. I and my family get calls and letters from lots of companies wanting to buy our mineral rights, etc. It would nice to know what sort of 'rate' we should ask.
Bill Woods
When Anthem called this week, I said $10,000 per mineral acre and that was the end of the conversation.
Bill Woods
With mineral rights, there unfortunately is no set formula that one can use to value them, as at the end of the day they are worth what the highest bidder is willing to pay. If minerals are producing, some buyers will pay an amount equivalent to a certain number of months worth of royalty payments as a way of quantifying their offer to the mineral owner. This however often does not take into account future wells, enhanced oil recovery, etc...
If you are dealing with an ethical buyer that is not a "flipper", they will examine a number of factors including the size and location of the property, the terms of any active leases, whether it is producing, if producing who the operator is, the geology of the area, etc...
If a property is not producing, most of the buyers that are willing to pay high per acre prices are those that anticipate significant near term production activity on the property.
The best way to achieve the most value out of a mineral sale transaction is to market the property to a large group of buyers, and to leverage any offers to achieve the highest possible final offer. I do that as a hobby for mineral owners, and have found it to be quite rewarding. Feel free to email me if you want any information about what is going on near where your property located, but as you mentioned, it is best to not sell minerals if you do not have to.
My email is [email protected]
I think it would be easiest to take any potential offers and calculate how many barrels of oil at certain prices to which those offers equate. For instance, if someone offers you $8,000 per net acre for your minerals and you're leased at 25% royalty you would take $8,000 divided by .25 (lease royalty) divided by $45 (or whatever oil price you choose) multiplied by 640 (likely acres in lease unit) to get 455,111. That's the number of barrels of oil for which you would be getting paid upfront risk-free if you sold at that price. Then look at how much nearby wells are producing and research/guess how many wells will ultimately fit in a 640 acre unit to see if you're getting a fair deal. You have to remember to also factor in the time value of money and the fact that a buyer is only going to buy your minerals to make a profit for taking on the risk of uncertainty in well production and future oil prices. This is a very simple method of evaluating offers so it's not the only thing I would consider. For example, you also need to factor in a natural gas sales so you might use a slightly higher oil price in the calculation to adjust for that. In the end this is about as simple as I think you can make it and it will give you a general idea of what you are getting and giving by accepting an offer for your minerals.
All "formula" aside, it's a guessing game. The best guesser gets the prize and most of these buyers are professional guessers. Find a way to get them to them to tell you what your land is currently worth.
I recently sold some land near to & NW of Pecos for an offer of $6500/ac.
Prior to that, the best offer I received was $5000/ac & I got numerous offers for "up to $2000/ac" in the mail.
To determine the real market value, make it widely known that you intend to sell, make contact the ones with the best offers ( ask what they are offering & don't respond to "what do you want?") and play the offers against each other.
I realized that I had reached or exceeded my current market value when the $5000 offer said "Let me know if the $6500/ac doesn't go through and we will talk".
Take your time. A year or three is not excessive.
Be greedy; they are.
Thank you all for your suggestions, it is really appreciated.