…and have been made an offer for ownership of this holding. I am not sure how to determine whether the offer is a fair one, or whether to hold onto it for future. There was discussion of upcoming legislation in incorporated Weld County that might effect areas near Greeley, but this holding is farther north in the “Grover Extension.”
Questions to this forum: how to determine the value of all our holdings in the area (this is only a small portion) and who to contact to determine whether a sale is necessary at this point or do we hold on? I would love a recommendation for a petroleum engineer in the area who might be able to help me better understand the political and actual situation in the area?
I understand, the rights that I have in Weld I have had for years. I am up North and for years to tie the property up I would get $500. for 5 years for a 1/4 section. Then all of a sudden it went up to $8000. for 5 years and now nothing.
So what is it worth? I have been offered $80 k for the rights a few years ago but we don’t need the money and how do you value something that doesn’t have an income.
.I traded for a bunch mineral rights parcels and we valued the parcel as rent value of one year times five
years so $500. Good as any value I guess.
I get letters all the time trying to buy one parcel or another. I consider the assorted mineral rights as a fun thing to have and someday I will leave them to someone younger so they can worry about the value.
Value is often what a willing party is willing to pay–seeking multiple buyer can help determine that. The lack of updated title should not be a cause or reason to sell as most buyers will ask that title be updated before any sale.
The value of your minerals are determined by the amount of recoverable resource that is in the ground. Many times the folks making offers don’t even know what the true cash flow value of the property is. My advice to anyone thinking about leasing, re-leasing, or selling their minerals, is to get a proper engineered valuation done on your property before you start negotiating. DO NOT assume what you are being offered is what your property is worth.
I am a Treasurer of a church in CA that was given mineral rights in CO. They are currently leased, but the lease will be up in October of this year. I agree that a proper engineered valuation should be done, but how do I find a qualified, reputable person to do this? Do any of you have recommendations? We have had several offers to purchase the lease, we do not own the land.
If you are looking to sell, depending on the size of the minerals, getting an evaluation is probably a good tool when negotiating a sale. When just leasing your minerals, I don’t think you need to get an evaluation done. You are negotiating an up front lease bonus and a royalty rate along with lease language. Hire an attorney to represent you. You don’t need to have an engineered evaluation done for leasing your mineral rights. I don’t blame this guy for promoting his company, but in my opinion and I have dealt with hundreds of leases it is unnecessary to get a engineered evaluation to lease or re-lease your mineral rights. Hire a lawyer (local to the minerals) to negotiate a good per acre bonus price and a good royalty rate and he will also insure you have the right clauses added to your lease form.
Also, please read the tabs under “Mineral Help” at the top of the screen to get some tips on what to do and what not to do when leasing.
Many lawyers and attorneys use engineered valuations to determine what the lease bonus should be, as it is, or should be, directly correlated to the value of the resource that is being leased. We have seen engineered valuations significantly help numerous mineral owners that were specifically negotiating lease bonuses.
However I agree that depending on the size of property, paying to get an engineered appraisal may not always make sense. Which is the problem with most traditional engineered valuations: they can be expensive. In my view it is absolutely worth while checking to see if getting a true valuation makes sense regardless of who conducts it.
Using an “engineered” value will lead to a low valuation. You need a market valuation based on local sales or other means to supplement any “engineered” values. Sales are market value, production results are market value only when they enclude all property, not just the producing stuff. In areas where mineral rights were selling for $2,000 an acre, I saw just such an “engineered” valuation for less than $200 per acre. I recommend you call the Turrett Company in Denver, (I do not have any affiliation with them except to know one of their principals as a fellow appraiser, who is president of the Colorado NARO (Natl Assoc. of Royalty Owners) and his name is Rob Prentice
So far we have heard that engineered valuations both over- and under-value what people “think” the minerals should be worth. Which camp they are in usually depends on whether they are trying to buy or sell. As you are aware from your geologic background, the value of mineral resources can radically change over a short distance. Which means that an engineered valuation could identify properties that are worth far more (over-valued) or far less (under-valued) relative to the traditional, “I know what it is worth because I know what something nearby sold for a few months ago,” type of valuations. In our opinion, speculators either over-bidding or under-bidding should not be what a mineral owner hangs their hat on when they are thinking about selling something as significant as mineral holdings.
Producing wells are one thing, but if the value driver is not the current production, the question is what is driving value. That is the first question to answer. So “speculators” or not, and the number of buyers is increasingly royalty companies, so much so that this month’s Oil & Gas Investor has a special supplemental magazine solely about about non-operating mineral companies. They are buyers and accumulators for a longer term outlook.
One interesting aspect of this is the argument of R. Hefner IV who said that when prices fell (which has a dramatic impact upon operators) it didn’t affect mineral prices nearly so much which piqued his interest and why they are concentrating on accumulation of minerals rather than drilling the deep wells his daddy did.
When I rely upon production in producing wells, we are running decline curves. Our curves are more conservative than those touted by operators. We are seeing Fayetteville wells production decline faster than the operators project, especially in the mid years. So we end up with mostly 12 - 20 years of total life, instead of the 40 touted. In OK, I do an annual assessment for a charity on a well that claimed 250,000 BOE… The “oil” we predicted would last 4 years, it shut in in year 3 although we had projected gas to continue for 10 more years or so, but with the gas price so low, and earthquakes making injection cost skyrocket, apparently they hit a break even point at a much higher volume than we used for a cutoff. There is room for 3 or so more wells on the property. I suspect they won’t be drilled for years, if not decades. Meanwhile there are 3 shallow oil wells drilled in the 1980s that continue to produce marginal oil which brings in something. This year, my problem will be to estimate the value with this new reality.
So much of what I do is shallow wells that paid very little but the buyers are buying on the basis of the deep potential. I am reluctant to value the mineral merely on the basis of shallow production, especially in Oklahoma, SCOOPS and STACK because the driver of value is deep horizontal production even when HBP, because they are still integrating parties and browbeating any operator who tries to prevent deeper drilling unless they have a dead to rights lease. I have run into that in waterfloods where the operator does control any deeper drilling rights and no one is paying the “big bucks” even though production is modest from the waterflood.
Quick note. SEECO (SWN for some of you) sold in Arkansas, as did BHP. They had scheduled a total of 77 wells to be be P & A. Merit and Flywheel are trying to unravel that application until they can determine if refraccing will help. BUT these wells were supposed to be 40 year wells? It is barely 15 since the first was drilled. And we still have DUCs…which hint. These DUCs - like so many in OK and TX etc. - are really just DUDs. They won’t be economic to complete so long as nat gas is $3 or less. This is a fraud and the SEC should stop allowing companies to book reserves from DUCs. Doing so would, of course, bankrupt a slew of the players, which is exactly what needs to happen, bring sanity back to drilling, and allow prices to rise to economic levels. Exporting our LNG and oil is a short term solution and flaring is a sin in my book. We will need those reserves sooner or later, or we risk a sudden dramatic rise in energy costs while we scramble some time in the future to find replacements outside of fossil fuels.