Do buy offer amounts decrease once production and royalties begin?
I don’t know that much about all of this but I can tell you my experience. We didn’t know we inherited mineral rights when my cousin (they thought she was the sole owner) was offered what amounted to 10% of what was being held in “suspended funds” for 4 years after they started producing. She sold right away. Then it was discovered that it was a total of 4 of us. They came back and offered us 1% of what was in “suspended” funds ( of which none of us knew existed). Two jumped and sold. I started to research and found the funds and 9 producing wells. I received more in my small percentage than my cousin did initially. I have received royalties for 5 years. Just recently, started receiving really large offers for my small percentage. Looked on the TRR commission map and there are 5 new permits for horizontal drilling. Really glad I did not sell. The initial production could be a lot of money.
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I also can only offer my experience. I inherited a small area from my GGF. My dad had said “nothing would ever come of it”. Well, Dad was wrong. My sisters sold out early on when there was just a vertical wall. They both got less than a quarter of what my royalties were last year from the horizontals.
When the lessee was getting ready to drill horizontals, I started getting a BUNCH of offers, so I knew something was up, followed the advice I got here to not sell. I got last year about what the offers were. For one year of production.
When those wells were starting to die down, I was still getting a few offers, but then suddenly I was getting more offers and for higher amounts. Nope, not selling.
I am not real smart, but I figure if someone who knows the business is trying to buy something from you, they want to make a profit, and are going to offer less than it is worth.
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You are absolutely correct. NEVER sell your mineral rights, even after your horizontal wells quit producing. Additional horizontal wells may be drilled at different depths than your original wells, and may produce as much as your original wells.
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And, you can impress your friends by saying you own an oil well!
Thank you all for the input. Mine is a small 2.5 NMA so it may not be as lucrative as others here. Offers started @ 20K…now up to 75K. Don’t know how long it might take to get that kind of money by holding on.
And that is exactly what my sister said to me when she was urging me to sell too. “Opportunity costs”
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Thanks Rudd. It’s a tough one for me.
What do you think about 75K for 2.5 NMA?
There is no way to know but you can bet that no one would offer that kind of money if they didn’t expect a huge return on their investment. If you own the whole 2.5 mineral acres, and I owned a tiny fraction…the initial production could be a whole lot of money. I would say it’s like a game of chance but it’s not. It is based on science, geologists, and a track record in the area. Like I said before, I will not sell mine.
Rudd, Always interesting why sibblings try so hard to convince the other to do the same thing. I guess they dont want to have a winner/loser situation over the Christmas turkey.
Thanks Judy. Is yours in Howard County?
Yes, offers will always be strongest before production has been realized. When mineral buyers are buying minerals, they’re buying them because they want the right to first production on those minerals. They care about the production from those minerals not owning the minerals, once that production has been realized, what value do your minerals bring? You can’t physically live on minerals, you can’t relocate your minerals, so once the oil and natural gas has been developed, produced, and sold there is no more desire outside of speculation that it could be redeveloped X years from now.
Many people will tell you to never sell your minerals in which that is a valid argument, but there are also countless people who have benefited off the sale of minerals that never got developed. To each their own.
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Ernst, I could NOT have said it any better!
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Yes, mine is in Howard County. When we didn’t know we had inherited the fractional mineral rights, we were told that probably nothing would ever be drilled on the land. Like I said, my 2 cousins and sister sold immediately. I researched and hired an oil and gas attorney. Best decision I could have ever made. 4 more horizontal wells are about to be drilled…that is why I am getting ridiculous offers for my fractional percentage. The initial production checks should be quite good.
Untapped mineral rights are roughly equivalent to a non-expiring option on the price of oil. JMHO, but, if you don’t need the money at the moment, they are definitely worth holding as part of a balanced portfolio. This is particularly the case with potential inflationary pressures growing. Further, sale prices tend to be based upon production from one strata, out of potentially 3-4 most places on the Permian. E.g., at least in Howard county, Spraberry wells and Wolfcamp wells seem to be about equally-productive. So potentially, you are giving away a lot of oil.
Yep. No one answer fits all. ALWAYS a time to sell an asset. Picking the right time is not possible. $30,000 a NMA is getting up there. Saw $50K per NMA in west Howard pre 2019 over supply. If $75K would “change your life” then take it. If nothing would change materially by receipt of $75K, then your certain to get more than $0 and could exceed $75K.
Everyone has a number. We have a few hindered mineral acres. I’d likely sell for $30K an acre, take $10MM is cash, pay very little income tax since most have a basis step up, and start fishing every day. At $5K an acre, wouldn’t be enough for us specifically to change life in a way to walk away from the upside over time from holding the minerals (we have 21 permitted wells at present).
Final thought is this. What matters as much as anything is what you do with the money you receive. It takes assets to build wealth. You can take this asset, reinvest the returns (whether sales proceeds or monthly checks) in other assets (real estate/property valued stocks/your own small business, etc), be patient, and let the miracle of compound growth start to change your family tree.
Cheers.
T
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Thanks for that Todd. I appreciate your input. I’ve got 9 horizontals drilled in 2020 & presently shut in. 4 more permitted and yet to be drilled relating to the 2.5NMA I own. What do you mean by the pre 2019 “oversupply” you reference? Just wondering what the conditions were that sparked 50K offers. Thanks, Kirk
That is always the trade-off, take the cash now, or wait possibly 10+ years. The longer the well produces, the production continues to decline. If it is a good well, even with 2.5 nma, you could make that back in 3 years time!
Thanks Frank, Do you mean I could possibly make that back on “one” well in 3 years time?