I have been approached by several mineral buyers for my mineral interest in Dawson county, Texas. The offers range in value and looking over the well results for Dawson (some great, some okay and some awful) I am trying to decide, if I were to sell, when would be the best time to do so?
When would non producing leased minerals attain their most value? Would it peak when the drilling permits were filed for that acreage? Then possibly go up or down based on the well results? I don’t want to hold on thinking it is going to be a Spindletop only for it to be a bust.
Also they make their offers based on net mineral acres, not net royalty (which I thought was the preferred method?) which I am guessing they are doing because they are trying to get their hooks in for extra cheap.
Net royalty acre calculation -
Mineral Acres x .125 x (royalty rate of OGL/.125) = Royalty acres
so if you have an OGL with a 25% royalty rate, then the royalty acres are twice as much as a 12.5% royalty OGL; however, the mineral acres are the same in both cases.
Known production yields the best evaluation. The greater the activity, the better the evaluation.
Thanks so much for the response, James! From my understanding the method to find net royalty acreage was (Net Mineral Acres X 8 X royalty percent = net royalty acres), which in my instance would be NMA x 8 x 25%?
Also, I understand that having production on acreage would increase the value (if the production is good) but given not all oil operators are the same nor all acreage is the same, would the value of NRA drop if they get a stinker for whatever reason?
Miinerals are worth more before the well is drilled in regards to selling them. Given that your area has mixed results, Its like buying a brand Lexus, (great car/suv but not a ferrari that will hold its value if not driven much) the minute you drive it off the lot or the well is completed, the price goes down. If you want to sell and think you are getting a good price, you could always just sell 1/2 interest to use the cash for other things and see how the well turns out.
That’s really not the issue. Most buyers make offers as “$ per net mineral acre” based on Net Mineral Acres because most mineral owners do not understand net royalty acres. In actuality the buyer has probably calculated the total price he is willing to pay for the total acres and expressed as $ per net mineral acre" in the offer. If one takes the total dollars and divides it by a greater number of royalty acres, obviously the the net $ per a “royalty acre” will be less, but the total $ offer will be the same.
There is a difference between selling “minerals” and sellling “royalty”. In most states, the owner of the minerals has the executive rights to grant the Oil and Gas Lease to explore for the minerals. In other words the owner of the minerals has the right to sell the Oil and Gas lease. The owner of the royalty only has the right to receive the revenue from the lease royalty.
I apologize. I mistakenly left out the factor of 8. The corrected formula is:
Mineral Acres x 8 x .125 x (royalty rate of OGL/.125) = Royalty acres
as an example for a 10 NMA converted to Royalty Acres using different royalty rates:
NMA 10 x 8 x .125 x (OGL rate .125/.125) = 10 Royalty acres
NMA 10 x 8 x .125 x (OGL rate .1875/.125) = 15 Royalty acres
NMA 10 x 8 x .125 x (OGL rate .25/.125) = 20 Royalty acres
Royalty acre is a very old term and was initially developed when a 12.5% royalty was a standard. Many buyers use it today either to purposely confuse the issue or they do not understand the conversion for an increased royalty rate. In many cases it is miscalculated. I have seen some that calculate it as your unit NRI x the Gross Unit Acres, which is wrong and meant to deceive.
I have shown the extended formula as an example, but it can obviously shortened.
Thank yall so much for your input! It does greatly help alot!
Also I had considered holding on to it but given how the results in Dawson can be great or not so great, I wanted options available to de-risk for as much value as possible.
I see so many people, indeed including relatives of mine, who sold theirs (to flippers it turns out, as that company then went and sold it to someone else) and I don’t want to be one of those that let others make a profit off of ignorance.
Hi! You might want to go read the posts/topics under Dawson County here on the forum. There is quite a bit of specific discussion about current drilling/leasing/etc. Depending on where your mineral rights are located can make a huge difference. We have rights that were recently drilled by SM Energy and the 2 wells are doing very good production.
@HunnyBee The flippers or mineral buyers that you refer to have developed the understanding of the best market value of properties. They have done this through diligent market research and hard work which comes at a cost.
I encourage all mineral owners to do the same when they are considering a sale or lease of their property in order to attain the best value. If you are considering a sale you should be be patient, diligently contact several buyers, and perform the research to understand the true property value. No one wants to leave money on the table, but most do not want to spend money to get the best price. Good luck to you.
Never tell someone to sell their mineral rights! Mineral Rights are sort of like a winning lotto ticket. Mineral Rights are the ONLY chance some people will ever have to make a lot of money.
@Mineral_Owner5 I would differ with you on never consider selling. There are many solid reasons to consider a well researched divestment program. I have not sold a property in over 30 years, but I do have a structured divestment option as a part of our estate plan.
I gurantee you if you would have sold 1/2 of your minerals (hang on to that other 1/2 for sentinmental value and your lotto ticket) in the last 15-20 years when offer prices were high in your area, taken those proceeds and invested it in the stock market, you would have more money than you do now keeping 100% of the minerals.
Thanks so much for that helpful tip, I will check that out for sure. I definitely do see that SM Energy has pulled some good results from Dawson, however I also see areas that seem marginal at best. I suppose my biggest quandary is just due to that fact.
It’s like playing a high stake “Let’s Make A Deal”, you don’t know the real value of what is behind the door (in this case, how much oil might be produced), the gamesman hands you a large sum of money and you risk it all on finding out or keep the money.
Midland, Martin counties etc would be like that game with great rewards behind maybe half of the doors, where maybe on the outskirts, like Dawson there is one door with a prize.