Hi. We own the mineral rights on a 20 acre parcel of land situated at 36 16N 08W in Kingfisher, Oklahoma. Recently, we received an offer to purchase the mineral rights for $12.5K/acre. Any thoughts?
My first impression is take the money and run. However, I can tell you that the offer you received may be just an attempt to see if the minerals are available. You may sign and return the offer and never hear another word. My family has seen activity north and west of you in 17n, 9w. The money offered you seems to be in the ballpark. It is a reasonable offer, maybe. A bird in the hand is worth two in the bush. It’s always good to get other opinions and advice from your neighbors though. Hopefully, someone else closer to your acreage will step up and tell you about recent activity near you or next to you.
The oil company has several landmen who are very polished and will tell you what you want to hear. Talking to their office will not always get you credible information.
We have minerals rights in section 29 & 31 and the latest offer I had (about 3 months ago) was $12,000/NMA so sounds like your offer is probably in the ballpark. I have a landman in Oklahoma who is currently shopping our rights around to find the best offer available but no feedback yet. I'd be interested in who made the offer to you. As other members have suggested sometimes offers come from fly-by-night outfits that may not pay. That's where a landman becomes valuable because they can tell us who is reliable and who may not be. If you want you can friend me and send a private message about who made the offer. I'm in CA. Hope that helps.
It's not out of line, considering you have a 1/8th lease. I could see getting a bit higher in that section, but would need to determine if your lease permits post production costs or is a true gross lease. If your lease permits post production costs, then $12.5 might be tops, depends on how aggressive a buyer is willing to get. I personally are careful when it comes to post production costs as they increase risks.
I'm sure you are aware that Cimarex permitted 7 additional Miss wells in the section in early January. I would presume they will be drilled within the next 12 months, and that XEC will take 5-6 months to put them into pay status.
So assume that cash flows are somewhere between 7 and 18 months away (the 7 month low side assumes the wells are drilled and competed in the next two months + the 4-6 month delay to put into 'pay' status, and the 18 month assumes the wells are drilled 12 months from now, plus a 6 month 'pay' status delay)
Based on the offsetting wells, adjust for a 20% decrease due to interference (average is a little higher in the play).
if you want to go into more detail give me a shout - email@example.com
landmen can be fly by night as well....
I guess I forgot to say "REPUTABLE LANDMAN" meaning someone that was referred based on their performance by someone in the know here on the forum. Yes, there are plenty of not-very-good or not-very-honest landmen and you definitely don't want one from the oil company. If you pay a reputable landman then he's on your side. I would agree that around $12,500 may be tops BUT as my landman says, you might get more from someone who is hungry enough. For us I was offered $12,000 just before a new well started producing, now we'll have 3 more new wells BUT you have to consider the time it takes to drill then at least 6 months before you know the wells production. If it's a big producer offers may go up if not, well, that's the risk you take. Keep the rights and in the long run you would likely make more money from the oil or sell now and bank the money. We have wells that have been producing more than 50 yrs but now it's just a trickle.
There will 8 wells in total on this specific acreage, so I don't think the analogy that the offers will go up b/c more wells are permitted is truly applicable. There is some Woodford potential, but the few area results have been mediocre.
I do agree with you and believe, that if you only have 1 well (or no wells) you are not going to get a premium for your acreage. The timing risk is too large for someone to make the assumptions required to pay a premium.
Furthermore, his lease is at 1/8, not sure if your lease is an 1/8th or something higher, such as 3/16th, 1/5th or 1/4, but that would also have a large influence in price.
RIGHT, wouldn't seem like there is much potential for further development, our case is quite different at the moment.
I like your area BTW. Is your lease at 3/16ths?
I believe our area is at 3/16. The land man will hire an attorney to research the title and verify the percentage.
I have title across your area. pretty sure you're at an 1/8th
Are you related to either Catherine Anna Svoboda (Catherine A Spink) or Charles Joseph Svoboda & Margaret Louise Svoboda?
actually - even though they filed for 7 wells in their regulatory filings, they only permitted 6 wells.
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I am the son of Charles. He died in 2014. Catherine was his sister. She died in 2013. She evidently sold her mineral royalty rights when she sold her share of the land. Margaret was my father’s first wife. My sister thinks it was a 3/16 royalty. Does that mean the same thing as 3/18. Lease?
This looks like a very good area based on the activity nearby and the completion by Cimarex in Section 36. I ran some rough numbers based on your decimal interest in 7 wells. Hypothetically if they all produce 400,000 barrels over a 10-15 year period at $55 oil you would realize around $307,000 in royalties. The cumulative production might be better or might be worse, that's the risk factor. Their offer of $12.5k may be based on a 3/16 lease. Companies often shoot out these offers, then calculate your ownership after you contact them. So the offer might be reduced if you have a 1/8 lease. If that is the offer for your 1/8 lease I would take the money and run, just my two cents worth.
True as to how buyers operate. They shoot out offers but that doesn't even mean you actually own the rights. They get info from probate, court, or other listings. We went through a probate last year which showed mineral rights and immediately received a number of offers but upon research of records found that the rights had been sold years before. The buyers aren't going to waste time or money doing the research for you unless you respond to their offers, even then you might have to hire a landman.
When you have an "Offer to Buy" your minerals, that is forever and ever "gone" from your families wealth once you sold it --- which may suite and be desirable in your specific situation. But you need to consider a couple of items as you weigh such an offer: 1) Those offering are betting that they pay you $12,500 up front and within 5 years or so, will get that $12,500 back through leasing or production with their profits coming forever after that.... So it's a bit of a gamble to see who wins down the road and 2) You have to look at what that property has done for you in the past and consider if perhaps your father or grandfather might have sold it 10 years ago for $4,000/acre...... No hard/fast answers here but you need to consider that the transactions "fits" your family now and in the future.....
One last point from personal experience -- my grandfather had 160 acres of minerals in which 2 wells were drilled over 40 years ago. He eventually sold the sold the south 80 acres plus his interest in that well and paid off the farm, purchased additional farm equipment etc. --- good use of the money. Nine months later, a tool was dropped in that well and it was plugged plus leasing at that time was about $150/acre. At present, leasing in that area is in the $3,000/acre range with horizontal wells extending the coverage. I've always wondered what that 80 acres would bring today in leasing/production versus the time value of it's original sale back in the 1980's... Just a story for consideration....
Both of your comments are excellent. If you need money now you could sell, if you hold on in the long run you would probably get much more but it would be in small pieces over decades depending on how long the wells produce. Of course as they age the wells will produce less. Some wells play out quickly others like ours are still producing 50 yrs later but it's only a trickle just enough to be profitable for the oil company, no so much us. As for selling, my parents sold quite a few acres in Blaine County back in the 1970's since they didn't think there would be any oil, sold for a few thousand dollars, now those acres would be worth a fortune!
First of all, my condolences, my dad passed in 2014 as well. A 3/18th lease is 16.667% - you see them time to time.
I think your father entered into a lease in June 1962 with W.A.Grant which was recorded at Book 183/Page 67, Image # 86. The lease was for 10 years at 1/8th royalty and covered the N/2NE/4. that lease may have terminated due to lack of production.
With that said, you should be getting paid on the existing well - you can tell what your royalty is based on the decimal. Essentially, the unit is 1280. Since you own 20 acres, in a 1280 acre unit you can back into the royalty rate they are paying you.
your decimal interest should = royalty rate X acreage/unit size
|royalty rate||acreage||unit size||decimal interest|
are either of those close to what's on your check?