We have a very small ORRI in Eddy county, NM and have an offer to buy. Given that the interest is so small interested in selling but want to make sure we are getting fair price. Anyone have any advice?
Check for clues in corporate presentations of operators in Eddy county, NM like this: EOG Resources 2Q 2018
Maybe get a second opinion: Hilltop Royalties is a forum advertiser and a gentlemanly outfit. I have no financial interest in the company.
It depends on who the offer is from. If it is broker, you are probably leaving a lot on the table. Generally, the mineral buying companies with deeper pockets pay the most. However, they target specific areas so you want to look for who is active in your area.
As a general note, we typically get our sellers double the original offer.
Dave
Hi Dave, are there some good ways to know if offers in mail are from brokers (meaning flippers?) or end buyers? And how does each type generally get compensated? Thank you in advance.
I have a similar issue. Dang near impossible to determine what a reasonable offer is for ORRI. No straight answers either. What is a reasonable offer for an ORRI per acre in Eddy County?
I routinely work on deals in Eddy Co, NM. I’ve seen a huge range from $2,500 NRA up to $7500 NRA. It really depends where the ORI is located, and what operator holds the lease. It’s also very dependent on the drilling schedule (new horizontals vs. old verticals),
I trust this helps.
Tom,
It is very difficult to gauge what a fair price is for an ORRI in Eddy County. It’s going to depend on the number of currently producing wells, the level of decline, and the number of potential infill wells that may be drilled (and if so, when). Sometimes you’ll even have a discounting factor in there for any risk that may be associated with the lease itself (for examples, if there were periods of time where the lease may not have been producing in paying quantities and lessors want to bust the lease, this can devalue your ORRI). Things you may want to consider are whether or not to sell just the portion of ORRI as to existing wellbores (less value/less money), only future wells to be drilled, or all of it. Regardless, if you’re serious about selling, cast a wide net and look auctions/listing services to market it (you can find people to do it regardless of size).
That said, chances are many of the parties who approach you are doing it with an eye on selling it to a third party, although there are outfits that buy it for cash flow. To be fair, almost every company is a “flipper”, even a majority of operators, and almost all of them that are backed by private equity money since the game plan is to acquire acreage, drill a few wells, and sell for 3x your capital contribution or go public if the buyers aren’t there and/or market timing isn’t right.
Hope this is helpful.
Thanks,
Nick Hunley, Attorney, CPL Disclaimer: This post is for informational purposes only and not for the purpose of providing legal advice.
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Thank you nhunley for such a thorough reply.
Nick’s post is spot on. Every is essentially a flipper. My only point is that brokers are typically the first to show up with an offer and hope to immediately flip it to one of the larger private-equity-backed mineral buyers. In representing my clients selling their mineral interests, I have found the only way to gauge a fair price is to send it out to all of the top mineral buyers and let them compete against each other.
Dave
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Eddy County is a big place. In 26S 31E the value of an ORRI is going to be something like $25k per NRA. As high as anywhere. In 21S 24E its going to be very close to zero. Without specifics, that’s your range.
At this point oil is down $30/bbl from its high, the Dow is pretty poopy, and the dollar is getting punked. Not a good time to be going to your PE backer for funding to buy minerals. Will see who is standing, drilling, buying when music stops.
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