A year and a half ago FORBES reports Minerals in STACK going for $5000 to $6000 an acre to LEASE and to BUY many times that, when they were still plentiful unleased minerals, now with no unleased minerals supply there is a great demand and you know what that means. Should be twice the price.
DEC 19, 2016 @ 01:38 PM 7,871 2 Free Issues of Forbes
Energy Private Equity Pivots To Mineral And Royalty Strategy
Lime Rock’s second mineral and royalty-focused portfolio company is San Jacinto Minerals, said Franklin. It was created around a year ago with a management team that spun out from Vantage Energy, he said. Because of their experience with Vantage, a Marcellus-focused operator, San Jacinto has an expertise in the core counties of those plays, such as Green County, Pennsylvania. Such expertise is essential to identifying future development trends and buying the mineral rights on non-producing acreage to get out in front of that development, said Franklin.
Buyers use such an approach to secure a stake in plays that otherwise might be too expensive, Knight said, but there is greater risk involved than buying royalties, which are already generating income.
In active areas like the STACK play in Oklahoma, for instance, some leases are going for as much as $5,000 to $6,000 per acre. Buying mineral rights outright instead of leasing them can result in a price many times higher, he said.
EnCap also backs multiple mineral and royalty companies, and has dedicated around $500 million to opportunities in that space, said Devlin, during the presentation. EnCap has three mineral and royalty portfolio companies, Houston-based Fortis Minerals, Midland-based OGX Holding III and Denver-based Raisa Energy, and is considering one or more possible IPOs for those companies, Mergermarket reported on 12 December.
For Lime Rock, an IPO is not necessarily the prime strategy, but Franklin agreed that it was a "legitimate option," speaking on the sidelines of the conference.
There are already publicly traded mineral and royalty companies that trade as master limited partnerships (MLPs), such as Black Stone Minerals, with a $3.5 billion market capitalization, and Viper Energy, with a $1.4 billion market capitalization. Such companies represent potential buyers for PE-backed mineral businesses, said Devlin.
Both Franklin and Devlin noted institutional investor appetite for yield. In particular, Devlin highlighted Ontario Teachers' Pension Plan acquisition of royalty assets from Cenovus for more than $3.3 billion Canadian ($2.5 billion US) in June 2015, which demonstrated attractive exit valuations for such assets.