Offer for 10k per Acre Section 36 4N 5W

Oklahoma Mineral Rights Grady County, OK
1

I wanted to do more research before posting questions into the Grady County Group that I'm have been answered many times before, but unfortunately, time is not on my side and I'm desperate for some insight from other mineral rights owners.

My mom and her family had inherited mineral rights in the above section. Each person in the trust received around 13 acres. A company approached the 5 family members and offered 10k per acre or around $133,000 each. 4 out of 5 accepted the deal, and the same company has been putting a lot of pressure on my mom to sell the last 13 acres for the same price.

I've been doing my best to educate myself from reading the forum (extremely helpful, and I am so appreciative for this forum) but I am supposed to speak with the buyer making an offer on Monday and I may not be educated in mineral rights, but I know enough of common sense that if you don't know the value of what you have, you will most likely be taken advantage of.

So my questions:

1. Does anyone know how I can find out what market rate is for lease or for sale of the rights my mom has in those 13 acres?

2. She receives royalty checks that are very small each month - like maybe $50-to $150, however, when I read the invoices the $ amount that the leasing company is reporting as gross value is significantly larger. Is it possible to invest in our own equipment to extract the minerals so that we don't receive such a very small royalty?

I want to thank everyone who visits this forum and shares knowledge to help us have a stronger negotiating position.

2

I don't know anything about the geology or current activity in this township, but I'll say two or three things that might help you.

First, I manage about 100 mineral properties in Oklahoma for our family. So I see a fair number of purchase offers. Sometimes I have no special knowledge of the situation, but in pretty much every case in which I either had or acquired sufficient knowledge to make a judgment, the offers were substantially below what I would think the properties are worth.

Here's a concrete example, not far from your property. We have mineral rights in 24-3N-5W, which is about four miles due south of your holding (one might say three miles, as there are three sections between; depends how you measure). We were offered $4500 per net mineral acre for this property in 2012 (by Blackhawk), $8000/nma in 2014 (by Paxt), and $10,000/nma in 2015 (by Northwest). By the time of the latter two, there were already signs of impending development here, but all of these offers were way low, compared with the actual outcome. Now before I tell you what I think the property is worth, I need to say that its current worth is based on the 12 producing wells now under production there by Continental Oil. So we've been lucky, and that's part of the calculus. The buyer is taking the risk here, and the purchase price he's offering you is a bird-in-the-hand, from your point of view. He is almost certainly also offering less than the actual expected value. So part of you calculus should be about how badly you need the money now, and how risk-tolerant you are. We're very risk-tolerant, and have therefore always done better by holding the property.

Our particular property, in 24-3N-5W, has been paying royalties of $12000 per year per net mineral acre. By the rule-of-thumb commonly used, that means a tax value (estate tax purposes, for example) of $72,000 per acre. In my experience, the actual long-term value is usually a bit more than that calculated tax value. The rule of thumb, by the way is 6 times the 12-month royalties (or, more precisely if known, 4 x 12 months' oil earnings plus 7 times 12 months' gas earnings).

So we would have lost a great deal by selling. But in the next section, maybe there's been no production, and selling (at this point, anyway) would look like a much better decision in hindsight.

So my rule (for our LLC) is never sell, but we're risk-tolerant, and our risk is reduced a lot by having 100 different properties that sort of average out the risk. Your mileage may vary.

Rudy

3

Rudy, wow thank you so much for sharing. Lots of great information there. I'm going to have to read it a couple of more times to digest it all! Thanks again!

4

Patrick,

You should be able get get a lot more per acre! Add me as a friend and we can discuss.

Thank you