While it’s always speculation as to whether wells will produce and how much production there will be, since Leon and nearby counties seem to be hot right now, I wonder something. I recently signed multiple leases with a company. I now have others fighting to buy all of them for at least five times the bonus I just received. Doesn’t that mean they think I’m about to get MORE than five times the bonus in royalties? Also, since these are new wells (actually, old wells reopened with fracking), is there any way to predict how long it will take for these new royalties to reach that 5x amount?
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In other words, how long do these companies think it will be before they make back their investment? Is there an industry standard such as “don’t buy unless you expect to make that money back in 5 years”?
Your best method of prediction is to look at the nearby wells in the same formation. Oil and gas pricing can vary, so be conservative in this area. Most people do not make offers of this type unless they can see a very quick return. Using a lease bonus multiple is never a good metric as to the quality of the offer.
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The people wanting to buy your mineral interests are in business to make money. They probably know something you don’t, especially if you’re getting multiple offers. You will invariably make more money by leasing your minerals than selling them. It is worthwhile only if you need emergency funds. Our grandfather and father drilled into us over and over, “Never sell the minerals”. Once you cash that one check, the income for you and family members is gone forever.
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When I buy minerals, I try to get my money back within 2 years.
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