Hello.
I am looking for some help. My father has an investment of some type in Henderson Well. I have attached an info sheet that came with one of the recent monthly cheques.
Can you provide any information for us as to what all this means.
Thank you for any help.
Looks like the well is in Oklahoma
Ken,
Your father has a revenue interest of 0.00237% by way of a royalty interest in the Henderson 1-10 well located in Oklahoma County Oklahoma. The name and address of the operator is on the check. This is a very very small revenue interest from which the operator is deducting state with holding. It will cost more to remover the tax than it is worth. When he gets a check, he should take you to to dinner one a quarter.
If someone offers to buy, beware and find out more about the wells in the area before giving up that quarterly dinner with Dad.
Gary L Hutchinson
Minerals Managment
Thanks Gary.
We received a letter from Fox Head Oil & Gas wanting to purchase our royalty and working interest in this well.
They said they will send us an offer.
Ever heard of these guys?
What kind of offer should we expect?
Thanks,
Ken
Ken,
When you get the offer, here are some things to consider. Any offer should place a value on both current (the Henderson Well) and future production (called Proved Undeveloped Reserves). Ask them how much they are placing on both.
You can determine how much they are offering in terms of $ per net mineral acre as that may be the form the offer comes in or you can calculate this yourself.
To get an approximation for how much he owns you should take a look at the lease and any deed to the minerals. If you don't have copies, you should be able to search online via the OK county clerk website and view/download electronic copies.
Knowing the net revenue interest of 0.000237 you can calculate either the royalty rate or how many Net Mineral Acres it is based on (as long as you know one and the size of the drilling spacing unit). You should be able to find the drilling spacing unit size for the Henderson well via the drilling or completion report (it's been a while since I've search in OK so can't remember off the top of my head).
Net revenue interest = Royalty * Net Mineral Acres / Drilling Spacing Unit Size
As far as value is concerned, do some research on what the current lease bonus rates are in the area and a rule of thumb (not usually very accurate but gives you a ballpark) is 3-4 times current lease bonus rates in terms of a price floor for the undeveloped minerals. As far as producing minerals are concerned, look at the average monthy revenue over the past few months and multiply this by 50 to get a feel for minimum value (can be upwards of 100x monthly revenue depending on several factors like the reputation of the operator, what stage in the life the well is, etc.). The best way is to do a discounted cash flow analysis on future production to determine true value on a case by case basis.
In general, I tell people to get an appraisal if you can afford it (to properly value both producing and non-producing minerals) or at minimum ensure that you seek out multiple offers to ensure you are not getting taken advantage of. Any reputable mineral buyer should be willing to explain the valuation methodology behind their offer. If not, then find someone who will.
Good luck!
Matt Sands