I am being continuously pursued by an Oklahoma company named Dry Creek Energy to sell our mineral rights in Garvin County, Section 34 T01N R01E where we have a new well, Macallen 1-27-34-3XHW, which has just started production and we have just received our first rather large payment from Continental Resources. After the first check, I used Mineral IQ well valuation projections to estimate the revenue from this well for the next 15 years. The amount we are being offered to sell our mineral rights is approximately 2.26 times the total net revenue projected for 15 years. It sounds too good to be true, so I have questions.
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How reliable are the Mineral IQ Valuation projections provided in their BASIC product?
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Is it possible that a company might make an original very attractive offer and then later use the due diligence period to significantly lower the actual sales price and thereby requiring me to sell at a much lower price than originally agreed.
They probably want the rights because the Macallen well is going north south, but there are permits for three more wells that go EW from section 32, 33 34. Are you getting paid on the Portmagee well already? So you are talking five total wells in the section, not one. Portmagee 1 is predicted to be ~11.8BCF! Macallen is nowhere near that. The subthrust Portmagee additional wells should be similar to the first one.
You have to take a look at the price deck that MinIQ is using. It may not match current or predicted prices. Also, they only run their numbers out about 10 years. Horizontal wells can last for 50 years. Although most of the value is in the first four-five years.
Yes, there are bait and switch companies out there. Most buyers won’t tell you about the wells about to be drilled. They plan to make a profit off of you.
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Not speaking of Dry creek, but it is not uncommon for a company to make an offer based on a number of net acres that are not correct. Then when they do the due diligence, the price gets lowered when it is determined that the seller doesn’t have the quoted amount of acres in the contract. Under the contract the price goes down proportionately.
Now if your net acres in a purchase agrement are correct, then other than re-negotiating the price, the agreement doesn’t give the buyer the right to arbitrarily lower the price.
YOU might determine if CLR is planning to drill additional wells.
You might also consider getting a Pecan Estimate to compare the market value to what you are getting from Mineral IQ. They can provide an engineering based estimate for a reasonable price. I agree with Tim that knowing your Net Mineral Acres is critical to obtaining an accurate valuation.
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Yes I have been paid for the Portmagee well for over a year now. It has already declined significantly in production, going from an original check of about $8500 first month, about 1700 second month and most recently a year later, $600. We own 15 NMA in Section 34 and a 1.25 NMA of Section 3 in Murray County, which is adjacent to Section 34. I did recently receive an Oklahoma Corporation Commission Order that referred to a multiunit horizontal well in Sections 3,4,5 of Murray County that might be one of the East-West wells you mentioned. I was not aware that there will possibly be as many as five additional wells and so I went on Mineral IQ and found a map that confirmed your information, showing both a drilling well and multiple permitted wells as you mentioned. I now feel much better about ignoring the “lucrative” offers to sell.
The projections that I have been getting from Mineral IQ for Macallen have been for 15 years. The prices used are currently at the $85 level but go down to the $65 level over time.
Thanks for your helpful comments