My family just found out that we have an overriding royalty interest in Lea County.
I would be very grateful if I could get some feedback about an offer. The interest is in the W/2 W/2
E/2 NE/4 NE/4 Section 21, T26S R35E Lea County. I have 1.73 net royalty acres. I have received an offer in the low $30,000s.
The offer references 3.2 NRA. I am not familiar with that number.
Can anyone tell me if this is a fair offer. Would you recommend selling or some form of lease?
@bfhunt01 you have permits all around you. IF you want to sell I would wait until you have permits and then go to sell. Would get a lot more than 10K/NRA.
NRA means “net royalty acres”. It is a common term used in making offers. It normalizes acreage with respect to royalty based upon a 1/8th royalty (most of the time). For example, if someone has one acre at 1/8th royalty, then he/she has one net royalty acre. The equation is acres x royalty x 8 to get NRA. So, 1 x 1/8 x 8=1. If someone has one acre at 3/16ths royalty, then the math would be 1 x .1875 x 8 = 1.5 NRA, 1/4th royalty would give 1 x .25 x 8 = 2 NRA.
Devon filed with the BLM for 4 permits mid-year 2020 in the E/2 of Sec 16 and 21. Have yet to be approved. Normally permits don’t wait 300 days at the BLM, so who knows what is up, I didn’t dig into it anymore than that. It’s entirely possible that the BLM will not be approving those permits under the new administration, but they did apply for them, which is something.
You say you have 1.73 net royalty acres? Based on your legal description (5 gross acres) that would mean that you have a 4.325% ORRI on that 5 acres. Does that sound correct? Well, whether it’s 1.73 or 3.2 or whatever it’s easier to just talk about it on a per NRA basis, like Lee_Ann and Martha said.
The offer is going to be on a per acre basis, so if they offer you $32k for 3.2nra and you end up having 1.73, you are going to get proportional reduced to $17k.
I trust that we all know that if wells get permitted you will get offered more. If wells get drilled, you will get offered more. The game is managing risk. If nothing ever happens, or is allowed to happen by the govt, then your ORRI will get zero. The offer is now, none of those other things have happened yet. That all said, the market there IMO is higher than $10k/NRA for unpermitted federal land. But it’s less than $15k/nra. I think with permits (4 in a 1/2 mile wide unit) it would be closer to $15k/nra-ish.
In terms of sell or lease…you have an override, which is tied to a federal lease (NM 0448921A I think). You don’t really have anything to lease. Just a % of the proceeds if that acreage gets drilled. Whether or not you sell is your choice and dependent on what $17-40k or something means to you, but if you do I would ask for more. Knowing who to ask besides who offered you might be the hard part.
Thank you so much for your reply. It was extremely helpful. It does sound odd that the permits haven’t been approved. It makes it difficult to value. Should I be concerned that if I am leaning towards keeping the interest that the current administration might continue their ban on permits and production? Any information you might have would be very much appreciated. All the best, Bridget
Bridget, No you should not be concerned and there are people on this forum who say never, never, never sell your minerals depends on your own situation. the minerals have been passed down through generations and it will all change after this administration its all a game so just sit back and enjoy! NMoilboy is very knowledable and always willing to help as are many others. Just have fun, work it and never take first offers. GOOD LUCK!
I think you have to look at everything long term if you are holding on to mineral rights and/or ORRIs. Unless oil goes the way of the dodo there will be an administration that will allow drilling on federal lands. It may be this administration. Federal uncertainty does affect the value of undeveloped federal lands, because possibly pushing back drilling 4-8 years affects NPV.
At this point it’s not clear to me what the Biden administration and/or Haaland BLM is going to do on existing federal leases. They seemed to be approving Fed permits post Jan 20th the same as they were prior to Jan 20th, at least for a month, but the pace of approvals seems to have slowed considerably over the past 3-4 weeks. This is all just based on looking at approved permits every few days.
Honestly, for folks with a few acres there is really no wrong answer IMO. If you’d like a five figure amount of money and trying to follow what is going on is a headache, then just sell and treat yourself. Or if you like negotiating or bargain shopping, then do an internet search of mineral buyers and shop it to a variety of them. If its kind of cool/interesting to be in the oil business or it has some sentimental connection to your relatives, then hang on to it and follow it as a hobby. The amount of trouble it takes to make sure you are getting the very best answer is probably not worth the $ delta associated with getting the very best answer.
Timmyd, Thank you for the excellent feedback. I appreciated it very much. My sister may decide to sell her share due to her healthcare expenses. Have you ever heard of Mountain Lion Oil & Gas? They are the entity that has expressed an interest in buying her interest. Again, thank you your insight!
I have heard of them but never have I talked with them. It took me 16 months to find someone that offered enough to make it worth my selling only half of my minerals which I had one sixth of one percent but covered around 2400 acres, with that being said the first offer was 25,000 for my entire 1 sixth I ended up selling half for 190,000 so beware! I never knew anything about the business when I got my first offer a learning experience I should say. I still rely on this forum for answers alot. I am retired now and have time if you need any help.
Have heard of Mountain Lion. They seem to buy small interests, aggregate, then sell to bigger fish. They probably aren’t going to rob/cheat you blind. Maybe one-eyed, but likely not blind. They are a real company. Their check won’t bounce. At the size of ownership that you have your only real selling choice is somebody that will likely sell to somebody else.
Just have your sister negotiate a per NRA price, at a bare minimum counter their offer before settling. I mean in the end it’s not worth your sister killing herself here, but if she needs money she’d probably rather get another $5-10k. Possibly solicit other offers. I’m sure Timmy can hook you up with other folks who might also make an offer.
Myself personally, I would just cut through the crap with whomever. You think I have X NRA and you are paying me Y per NRA? (For a total of XY). IMO, Y needs to be somewhere above $10k and ideally above $13k regardless of what X is. For where you are located. It sounds from above that may have already happened. Then work on the per NRA price with them.
It sounds like you were offered low $30s for what they think is 3.2nra. I might counter at $40k ($12.5k/nra) and call it good. Be aware that if they agree to $40k and then their title determines that you have 1.7nra instead of 3.2nra, you (a generic you, meaning your sister) will get a proportionally smaller amount.
You can observe qualified professionals (often with localized expertise) who provide services to mineral owners right here on The Mineral Rights Forum. You will notice them among 3 different instances on the site:
in display image ads and/or brief text messaging on site
as a Business Member participating in many conversations throughout the site (note the blue colored “B” on their picture and blue text on their posts).
These practitioners are often able to provide the specific (and often localized) services that meet your needs.
They are a real company. Their check won’t bounce. At the size of ownership that you have your only real selling choice is somebody that will likely sell to somebody else.