I am new to all this so excuse the level of understanding but try to learn quickly. We are continually getting offers on our well interest. The offers seem to stay in the same $ range despite the price of oil. Why? I’m trying to find the actual value of the well interest vs what the oil companies are offering. Is there some formula relating to potential production, depth of the well and are there other potential oil bearing layers below not included in the basic production data. The well production has fallen off significantly with the reduction in oil prices, as mentioned above why is the well interest offers basically in the same range. Seems there is something missing in a true evaluation of well production. Anyone enlighten me. We are also a part of a larger pool, I’d love to speak to someone in that pool or the area. thank you Dale55
Hi @Dale55, welcome to the forum 
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First, the offers are based on the risked and discounted future production expected to come from wells on your acreage. The more certain there will be production, and the more production there is expected to be, the higher the offers get. A section with 10 undrilled possible wells is valued much differently than a section with those same 10 wells producing (because of the risk of them ever being drilled is removed).
Second, unsolicited offers are not great ways to establish value. Those are usually quick offers put together by mineral buyers hoping to get someone to bite. It’s like getting a random phone call from someone offering to buy your house for $200k “cash down, quick closing!” when you know you could actually sell it for $270k just by marketing it properly. In the other direction, there are also “teaser” offers where you might get some dream offer of $400k for that same house, but the buyer ends up taking half the value off the table right before closing due to X, Y, and Z reasons (hoping you take it anyway since you’re so far down the rabbit hole with them).
The commodity price applied to that future production is the second part of the equation. Not today’s price, but the long-term price. The “NYMEX WTI Crude Oil futures” for the next 2-5 years, for example. Today’s pricing moving from $50 to $30/bbl doesn’t affect the asset value nearly as much as the average future price moving from $50 to $30, and they don’t always move hand in hand. Right now, the market is expecting roughly a 1-2 year recovery for pricing to return to what it was. So long as the market is expecting a recovery of pricing, the offers won’t change to terribly dramatically after the first initial drop that happened in March/April.
Let’s look at what’s going on with your section. Operator activity affects unsolicited offers quite a bit. I’m seeing one producing well in Section 30, and three DUC’s (drilled uncompleted) wells that were drilled in March and May. It’s hard to say with just a cursory look if Callon Petroleum cut their losses on the section with the impact in pricing, or if they’re just taking their time completing these wells. Looks like they did quite a bit of financial maneuvering lately including a 2nd Lien (https://www.callon.com/news/news-releases/detail/316/callon-petroleum-company-announces-170-million-in-asset). Basically, it sounds like they were having liquidity issues (free cash) and had to rearrange some things before continuing their capital programs (like completing wells). They have a LOT of DUCs for the size of their position; 80 wells waiting to be completed when they only operate ~1600. This could be a decent plan if they can afford not to have them produce while prices improve…but that looks like it’s going to be a while.
Putting this all together, you probably did see a drop in valuation happen in March/April due to decreased commodity pricing, but this was masked by permitting/drilling raising the value of your acreage due to the March/May wells de-risking the production timing.
In your area of Reeves County, I would not use any rules of thumb or basic formulas for establishing value, such as “X times a year of royalties”, or “X times average lease bonuses in the county”. There’s just too many other variable here. If you’re wanting to sell and need to know how much to sell for, either work with an agent who can market your mineral to a wider audience and let the market set your value (though you’d need to have a degree of trust here in who you’re working with), or have your minerals independently valued/appraised by an engineer for a technical view of what your asset’s fair market value. Reeves County mineral interest has sold for more than $30,000+/NMA in some places. $10,000/NMA might sound great (not sure what your offers are for, but just guessing), but not if you should have gotten $30,000. At the same time, Reeves County has a WIDE range of value and your acreage is good but not the best (maybe A-/B+? Further North is a bit hotter). Waiting for someone to offer $30,000 might mean you miss the boat.
Feel free to ask any questions you need! That’s what we’re here for!
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