My family owns roughly 90 NRA in sections 24 and 25 of T21S R34E and sections 19 and 20 in 21S R35E. We have an offer to purchase this interest for approximately $6400 per NRA. Is that a fair market price? Title has been verified by buyer and they would close very quickly. Any opinions would be greatly appreciated.
We had a similar buy offer not far from there ( T20S, R 35E). However, we ended up leasing it for approximately the same amount per nma. My advise would be to see what kind of competition you can stir up leasing it.
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There is a pipeline that is being built from Midland to Hobbs. It is projected to be completed mid 2020. At that point, the COSTS to transport the oil from the well head to the refinery will go down.
All the ‘big boys’ are waiting for that to happen. Prices are on the rise. Be patient. Read the site. I’ve read where there have been offers of $10k per NMA sign on bonus plus you LEASE IT, not sell it.
$6500 per NMA sales price is a steal. No wonder they would go for a ‘fast close’.
Hang on another year. Then get back to me.
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Thanks for information. I’m going to show how little I know here. But since this ORRI, I thought it can’t be leased. Mistaken? I definitely don’t want to give the interest away but I an looking to divest from that region and industry (I live in the midwest) and put into commercial real estate in my neck of woods.
You cannot lease ORRI. What you have is most likely a State/federal lease. We have been offered up to 30K pnma in t21s, r33e Lea County on a mineral interest. Marathon is currently drilling three new wells, with 2 additional apps. There are already two producing wells that have been producing for 7-8 years that still bring in averaging $500 per month. I’'d check out your acreage on the New Mexico oil conservation division for permits to drill, etc. where you can search by property description. Their website is:
http://ocdimage.emnrd.state.nm.us/imaging/WellFileCriteria.aspx
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If you are intent on selling, try to get more than that one offer. It is amazing how a little competition can get the price up. You might want to get an appraisal done.
I checked out your sections you have listed without knowing the quarter description. In Sections 24/25 t21s, r34e there are numerous applications to drill from Mewbourne (a terrific company) in Section 25 as well as a few producing wells scattered about in all 4 sections.Same with sections 19/20 in 21s, r35e. There are a few wells there too, with several new permits from Matador in Section 19.
For exact information you need to provide the quarter description as you don’t own ALL the sections. A section is generally 640 acres.
Hope this helps.
I think the price should be more than $6400/NRA. You should shop it around some. If that is daunting, it’s probably worth paying a broker or somebody to do it for you. Anybody buying will verify your title.
Trust but Research! Find out about your property . . . . where it is, what possible formations are under this property, how long these possible formations will produce at optimum rates, and . . . . most importantly the terms of your lease agreement!!! You should require a minimum of a 15% royalty and more if you can. You also, these days, have to define your royalty as being exempt from “production, transportation, and treatment costs” of the product being exploited by the producer. Otherwise, you will be lucky if you receive a total of .5% of your minimum royalty. I would suggest that you demand a 25%+ royalty along with the exemptions I have described above. If they go for it . . . . done deal . . . . if they don’t, negotiate from there but absolutely do not accept the “exemptions” I have described above!!! Most importantly, Your Terms should absolutely be defined in the Lease Agreement!!! They are absolutely out to milk every “profitable dollar” they can by Any Means!!
$6,400 NRA is an absolute steal!
My family ownes a wee bit of mineral rights in Sections 22 and 23 of T20S and Range 35E. They have been producing for at least 20 years from the Bone Springs formation. They are not, of course Shale Horizontal plays, they are simply verticle holes that have produced for quite some time! My suggestion to you is bump your price to at least twice, if not "thrice" of $6400 per NRA.
That being said, if you are thinking about your family and decendants, you might want to consider working toward a Royalty along with a lease bonus! You may be able to negotiate a 20% Royalty along with the initial "Bonus" instead of selling your lease.
We have been successful at this and, even though we did not negotiate our family's original lease agreement, we still receive a small royalty from our leases more than 45 years ago.
My best regards,
Stephen Watkins
This gentleman owns an ORRI. He’s not signing a lease or negotiating a lease. It’s an old state lease. The terms are the terms.
Thanks everyone! Very helpful. Yes, this is an ORRI in possibly as many as five leases with a depth restriction of being below or deeper than 5200 feet . I assume some of leases must still be in effect but perhaps not all of them. The leases are listed below. I have tried to look them up online but with no success. Does anyone know if they are all still in effect? The only royalty we have received is from the Mewbourne Quail Hollow 20 State No 1, so at least that one is still active.
- 1966; Wilson Oil Company. NM lease # K-6027
- 1943; Wilson Oil Company; NM lease # B-10792
- 1949 Vilas P Sheldon; NN lease # E-2385
- 1949 Wilson Oil Company; NM lease # E-3145
- 1949 Wilson Oil Company; NM lease # E-2446.
Thanks.
Thanks. Yes, definitely a state lease–more than one, I think. When you say $30K per acre, that’s for a net mineral acre, which you can lease for negotiated bonus and royalty terms, correct? And not for an overriding royalty interest (ORRI, which is what we own here)? I would think an NRA based on a ORRI will always be less than actual fee interest mineral right for a given area, correct? Do you know if there is a rule of thumb for making that evaluation? So if purchases of NMA ownership are going for as much as $30K per acre, comparable offers/purchases of NRA ownership in same area would be _________?
Thanks, NMoilboy. We have not tried to sell this with a broker yet because have been focusing on some other interests (487 NMA and 30 acres of 12% reserved free royalty interest) in T25S R24E and T25S R25E in southern Eddy County and some land in Culberson County (sections 5, 6, 7, 8) in Block 97. We assumed those interests would be more valuable than this ORRI in Lea County, so we hired had a landman to document our exact ownership. It appears we are wrong in thinking that the southern Eddy County and Culberson interest would be worth more than the ORRI in Lea County. We have not been able to sell via a broker the other interest but have an unsolicited offer of $600K for the Lea County ORRI.
As far as I can tell, the two that are still active are B10792 and E2446. See below.
The Quail Hollow well is holding Sec 20 (B10792). E2446 is held by shallower wells thus you get no checks.
Those two leases are 560 gross acres. So if you had a 2% ORRI, you’d have +/- 90 NRA. So maybe that is what is up?
I think unfortunately 25S 24E, 25S 25E, and Culberson Block 97 are, as you have experienced, worth very little. Likelihood of horizontal drilling is quite low based on current understanding of the geology.
Very helpful. Thanks. When you say you think $6500 is low for the Lea County ORRI, what would you consider to be a fair market price range? Regarding the southern Eddy minerals, the concern raised by interested parties seems to be more related with logistics (roads, infrastructure, etc) and with the proximity to Carlsbad Caverns. We are going to probably list the 25-24 and 25-25 on auction site next. Thanks again for your very informative posts!
Ok, good luck with the other stuff.
On the Lea acreage, all you need is one buyer. Nobody crazy but maybe somebody with some optimism. Maybe one who thinks Eastern 21s34e area is as good as a few miles west. Maybe one who values a permit as if that’s a very high chance of a well in the near future. I would think shopping it would greatly increase the chance of finding that buyer, you may get 50% more. $6400 is a fair price if you think there will only be 4 HZ wells drilled in each lease here in the next 20 years. It COULD be less than that, but I think the average expectation would be higher than that.
By no means gospel but that’s my logic
I’d ask for the right to participate in wells
JWM, you have lots of responses here! For clarity, I thought I would reemphasize that this is an overriding royalty interest. That means you only have the right to collect royalties from future production. It is very different from a mineral interest in that you cannot lease it or demand the right to participate in any wells as some have posted.
Typically, ORIs are valued on a price per net royalty acre (NRA) as opposed to net mineral acre. Because ORIs don’t have a set royalty rate, they are calculated as the gross acres x the percentage ORI x 8. The number 8 is what is used to make it a comparable number to a NMA (i.e., based off the tradition of leasing minerals at a 1/8th royalty. Because it is common for most fee mineral interests in the Delaware Basin to be leased for a 25% royalty rate, the price per NMA is typically two or more times higher than the price per NRA.
In this area, we have seen ORIs sell in the $15,000/NRA range depending on a number of factors. So, yes, the offer you received is quite low.
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Thanks for the detailed response. It’s very helpful.