I am trying to decide whether to accept a purchase offer for mineral rights. I have no idea what sort of future revenues I might get if I don’t sell. How can I find this out, so I can tell if the offer is good?
To possibly get some input, folks need to know the State, County, Section, Township & Range. All minerals are NOT created equal.
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Value is going to be based on your position, play, and operator. Also whether the interest is PDP or PUD leaning, different buyers are looking for different investments while some are looking for current cash flow might be more in favor of a PDP interest. Others who are looking for a longer return will probably look at a PUD heavy interest with a good strong operator. The Covid-19 Pandemic has changed the space, as there are some operators who are not going to survive the downturn in the market. Until an operator shows signs of surviving and recommencing operations or a buyer has been found for their position they will not hold the same value that a blue chip major would hold from a mineral buyers position. -Jeremy
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If you’re trying to figure it out on your own, it depends on where you are, if your minerals are leased, and if you’re currently receiving royalties. If yes, you’re receiving royalties, you can look at the trends in your royalties to get a feel for what the near future will look like. This is only part of the picture, but the most certain part so it will weigh the most in any methodology.
If you’re not receiving royalties, it gets (even) muddier to establish value. Without access to databases of sales data and production trends, you’ll have to find rules of thumb to use to apply to your acreage. There are rules of thumb out there (that usually only work for one type of property or one type of income) you can use to get a “quick and dirty” feel for what someone should pay you. The problem with rules of thumb though are that they assume static activity and standard production (or no production). Many parts of the country are being actively developed so a property not producing today might be producing with four large wells in a year. This drastically changes royalty payments.
If you’re serious about selling, the best idea would be to consult with someone in the industry like an engineer or geologist (or even a landman for small jobs, but I’d go to someone in the sciences with evaluation experience for anything serious) about your specific acreage. They can provide you a simple opinion of value (better value for a small acreage position) or a full blown analysis (if you have anything significant, like if you think it’s worth more than $50,000), which would give you the most leverage for negotiations and information to make your decision.
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Sorry, the property is in Gonzales County TX about 15 min. south of town, IDK township and range, in the Eagle Ford. It’s been leased for years to EOG. I have an offer to buy the mineral rights from me now but I have no idea if it is good or terrible, as I don’t know what folks expect to happen in this area. Any advice is appreciated.
Thanks! IDK some of your terms (PDP, PUD) but I think I didn’t give you enough info. Sorry, the property is about 160 acres in Gonzales County TX about 15 min. south of town, IDK township and range, in the Eagle Ford. It’s been leased for years to EOG and pays me every month but of course has dropped a lot recently. I have an offer to buy the mineral rights from me now but I have no idea if it is a good or terrible offer, as I don’t know what folks expect to happen in this area. Any advice is appreciated.
Thank you! Thanks! Sorry, I think I didn’t give you enough info. The property is about 160 acres in Gonzales County TX about 15 min. south of town, IDK township and range, in the Eagle Ford. It’s been leased for years to EOG and pays me every month but of course has dropped a lot recently, so I don’t know if the current royalties or the typical ones before the oil price collapse are best to use for future estimates. I have an offer to buy the mineral rights from me now but I have no idea if it is a good or terrible offer, as I don’t know what folks expect to happen in this area. I would LOVE to know the “rules of thumb” you mentioned, anything is helpful! Also I am willing to hire an expert (engineer, geologist–this is definitely not a small job), but how do I find a good one? Any guidance is much appreciated.
It’s about 160 acres.
PDP = proved developed producing. Wells that are actively producing have the least risk associated and although remaining production is less, it’s not discounted as much
PUD = proved undeveloped. Well that are planned for a part of the reservoir that is proven to be productive (usually because it’s right next to a producing well), but not yet drilled. These wells have the most remaining production, but the risk that they’re never drilled or have a mechanical issue or hit poor reservoir makes them discounted more, usually ~50-75% of a producing well (or less).
The key is that the minerals not yet drilled DO have value, and to not value the acreage strictly on things currently producing. Most buyers try to get minerals for just the value of the producing wells because they make their money on the “upside” (undrilled wells). I’d hope someone offering you $ for minerals in that particular area would be valuing it, but good to check.
There’s a directory of services in the top bar of this website. Make sure the person you find doesn’t also buy minerals, since there are many of those out there. “Reserves evaluation”, “mineral appraisals”, “mineral valuations” are terms to search for.
For the rules of thumb, I don’t know them by heart because I use my models instead (because I can lol) but googling “rule of thumb mineral value” and such can pop up some like “X times the annual royalty” or “X times the lease bonus = mineral value”.
A quick check of those Whyburn wells looks like any decrease off trend is probably just commodity pricing, which COVID caused to go a bit wonky starting in March and hitting a low in April. Side note, EOG has permits (filed Dec 2019) for 4 new wells running through the area. This doesn’t mean they’re about to drill, but means they were looking at it at the end of 2019 (which could have changed by now…but still).
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You’ve gotten a lot of good advice. Couple of general things to add, unless there is a particular reason to sell now waiting for more normal times…hopefully there will be some…when demand for energy is stronger and drilling activity resumes will probably offer a better market for your minerals. In any case, don’t accept an offer without seeing what some other potential buyers are willing to pay you. You should be able to figure out the survey name or abstract number where your mineral interest is located. With that you can look in the county deed records (or do a free index search on-line through TexasFile.com or CourthouseDirect.com) to find grantee’s (buyers) names on recently recorded mineral deeds in your area. Contact a few of them and see how their offers compare. Selling part of your interest and keeping part is also worth considering.
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Thanks so much! I am new to this excellent forum so didn’t know about the tabs, etc.
Thanks so much! Abstract A-228. I will also try to figure it out.
When you posted your abstract I was curious what the deed records would show. Considering how much drilling has been done TexasFile didn’t show as many recent mineral deeds in A-228 or the surveys around it as I expected. Maybe folks are holding on to their minerals.
I know nothing about any of these companies but three mineral buyer names that showed up in that area were Maven Royalty Partners, Tabor Mineral Fund and Tower Rock Oil & Gas. They each have websites if you want to check them out.
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