I still do not quite understand why people would be willing to pay so much for Permian minerals. The sentiment to never sell from an owners perspective is usually due to a lack of information. Is there something about the business model of buying minerals that I am missing? Surely the buyers are still expecting to make money down the line. I’d be curious to see the risk profile of a typical Permian basin deal. I guess my question is, why do the buyers risk so much on these deals?
Its because they raise private equity money and they have to spend it to show results. 7 years later, 85% of the companies are out of business and rolled up into 1 fund bc they paid to much and the well results arent profitable. But the group think on here has evolved into, theyre pros and know what they are doing so you should never sell despite the economics.
In Oklahoma and Arkansas you can look up sales in the courthouse and see what people are paying - some mineral deeds don’t state the net mineral acres but the deed stamps should be accurate. Buyers are paying about 3 x the annual income for producing wells. Or, the sum of 36 months income, or, in one case i know, 6 x the last six months cumulative income. Colorado and California are states to avoid due to their government policies. If a geologist, you might try doing some simple mapping to see where the next great play is -but that’s a long and high risk game. Natural gas is so glutted with associated gas from the Permian and OK plays, it’s a very long game. But old gas wells often produce at low levels for decades. In those cases, you are buying an income stream with risk. And it is a wasting asset, although many areas have potential to be redrilled, refrack’ed or developed in a new zone, wells eventually deplete. PS-stay away from buying lithium minerals. I am saying this as spending 20 years as a geologist and 30 years as a certified general appraiser specializing in mineral rights valuation.
Let’s go back to the original topic point started by @M_Barnes which is starting a mineral portfolio. Telling people what not to pursue fails to progress the discussion. Developing and implementing a strategy in this mature arena is difficult, but it can be accomplished through diligence and patience.
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The original NARO question was asking about how an individual might go about buying minerals a little bit at a time. The Conversation has been interesting! Thought it would be. The big buyers have a different strategy.
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