A landman has presented me this information after I turned down his offer. Any thoughts whether for or against selling?
He writes:
“B.P. America ( the oil company exploring in this area) has been paying $300.00 per net mineral acre for the bonus and offering 3/16ths royalty. Now the math:
You own 1.3035 net mineral acres, but lets just say for the ease of the math you own 2 acres. The size of the units B.P. is forming is 1280 acres.
2/1280ths X 3/16ths =3/10240 and the decimal equivalent is 0.00029.
If B.P. drills a great gas well and the total marketable gas over the life time of the well is $50,000,000.00.
0.00029 x $50,000,000.00 = $14,500.00 to you (remember you only own 1.3035 net acres). My offer is $13,035.00 which is guaranteed.”
What he is not telling you is the price of the products that he based his numbers on and also not telling you the chance of multiple wells on that property and future royalties from any future wells. If he is offering to buy, he has already figured out he will make a profit off of you…
Actually a pretty good offer. Hanesville is dry gas in Angelina County so no liquid value. Most wells average 4.5 BCF in Estimated Ultimate Recovery or thereabouts. To the 8/8ths, (assuming $3 Gas which is generous because gas is sub $3 currently) that is only $13,000,000 gross per well spread out over a 18ish year lifespan. True that a unit that large would have multiple locations but the economics are not that favorable for BP so who knows if they will ever drill it out. They just bought BHP and have lots high rate of return options to play with. Hanesville is going to be lucky to compete for capital.
I’m not sure how much bearing this might have but Align Midstream Partners (serving BP) just built a natural gas pipeline facility about 3.5 miles NE of this area. As per the following article, Align will spend $30 million in the next 18 mo. in the area.
The landman told me that it was a special offer negotiated and that it’s much more common in the area to get around $5K per acre. So unfortunately, I’m not sure they would be willing to offer the same to other sellers.
If I was in your shoes, I wouldn’t sell. The offer sounds like its based on a single unit well. Shale gas it all about cash flow, and high flow rates. BP has to keep drilling for the play to stay economic. I can guarantee that this isn’t a “one” well deal.
British Petroleum, via Landman from NACOGDOCHES, offered $350/acre and 1/5 royalty and five years. After I let him know it wasn’t my first rodeo, he increased offer to $500/acre.
I know there is oil and lignite coal in this area and am not inclined to lease at that rate. I’ve got oil leases in other counties for that much per acre.
5 years is too long for a lease. They need to get in & drill or forget about it.
Landman trying to rush the lease, says BP is only game in town and if I don’t go with them, then I’ll never see my property leased.
Any comments??
