What does it mean when someone wants to make a cash offer on the wellbore production only.
It typically means they’re wanting to buy the rights to future royalties of just that well, and not the minerals interest. You would have rights to any new wells drilled in the minerals, and their interest would cease when the well is plugged. It’s the least amount of risk an investor will ever see in the industry. Are you leased and receiving royalties, or do you have working interest in this well?
In Texas, assigning interest in a wellbore means the new owner will have rights to anything that well produced from that wellbore.
It means you are only selling the future production that will come from the specific well. Once that well is done, the Buyer has no further participation. You still retain your mineral ownership. If future wells are drilled on your minerals, those would still be yours.
Hi Mary- just wondering if your offer was from OGI out of Denver? I’ve received several from the lately.
i do not understand why a company would be interested as i receive very little from this. this is leased. do you need more info to give me more help?
They could just be doing blanket offers across all the wells in the area.
i still do not understand the advantage or disadvantage. i apologize for my ignorance.
Everything in this industry was made up by two Joe’s shaking hands at a bar or on the golf green, so don’t be hard on yourself! I kid, but really, it can be hard to wrap your mind around when you’re not knee deep in it all day.
Think of it like each well being a company on the stock market. Undrilled minerals are like the companies on kickstarter. Big investment funds looking for a place to invest money for a modest, low-risk return don’t want to invest in Kickstarter companies; it’s too risky and may take 10 years before the companies are profitable. Instead they go to the established companies on the stock market and buy shares in a wide array of stocks for diversification.
Similarly, back to your situation, some investment funds buy oil interests (minerals and royalties) instead of company interests (stocks). There are some funds that love the risk and reward of the minerals side of it, but compared to stocks, minerals are still a bit risky and messy. Since producing wells are decently easy to put a purchase price on, and owners in each well are decently easy to find thanks to tax records, handing out an offer for just the well is a five minute exercise. Adding your minerals position description and value to it would add a significant amount of time to the offer (possibly), which isn’t worth their time anyway since the rest of the mineral interest might not have an income attached to make their investors happy (royalties are like dividends with stocks).
There could be more going on then just the above with your offer and well, so review the language carefully. They’re probably pricing their offer on your future royalties hoping for an 7-10% return on their money. That’s why they’re doing it.
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should i consider it?
Everything should be considered. If you don’t want to do it, don’t. If you want the money, try negotiating for more. If you give the legal description you might get geological information from someone that can help you. It’s ultimately your decision.
I agree with @TODD_M_Baker, it’s your decision and hard to say without all the details. What they’re offering, the specifics of the offer, the projection of the well, your personal financial situation, etc.
The idea of purchasing wellbore only rights isn’t terrible on its own…it’s just giving up the most certain part of your revenue stream so they better pay you properly for it.
And be aware that while they might offer to buy the wellbore rights only, what is actually stated in the legal contract may be altogether different and may say something different. I have had quite a few cover letters state one thing but the contract reads much differently!
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i said to hell with it. do not need monies and i believe in leaving well enough alone.
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