Anyone able to give me a "fair market value" range for mineral rights within Township 163N, Range 92W? Just curious if any drilling is "on the radar" and what something like this is worth? I have a family member as the contact person and am sure it's under contract for another year or so. Thanks in advance!
That area is unfortunately outside of the Bakken fairway. There is a lot of old conventional vertical production from Mississippian zones but not much activity lately. There have been a few horizontal wells lately targeting the Mississippian, but results aren't all that promising so far. If you have a more detailed description i.e. Section numbers, I could give you more detail.
I appreciate the info. Here's more info:
Township 163N, Range 92 West, Section 4
There are about 15-20 wells in the township and Petro Harvester has a rig drilling a couple of wells in T-163 Range 91. The Madison is hit and miss but there is potential there. One well I looked at produced 140k barrels oil in 27 months but 408k barrels salt water. A disposal well on site would ease the water problem.
There are three recent wells in your immediate area, all drilled by Petro-Harvester:
The closest one is just west of you in Sec 5. That well has produced 32,000 bbls of oil and 138,000 bbls of water in approximately 2 years.
To the east there is a well in Sec 3 which has produced 67,000 bbls of oil and 89,000 bbls of water in the same time frame.
To the northwest in Sec 32 of T164N, R92W is a well that has made 110,000 bbls of oil and 300,000 bbls of water in 18 months.
A (very) rough extrapolation yields an average of 200,000 bbls of oil recovery over the life of these wells. If a similar well was to be drilled in Sec 4, that equates to 312 bbls of oil per acre.
The following is a simplistic way of looking at this:
Number of acres you own X 312 bbl per acre X your royalty % X the oil price per bbl = Net revenue over the life of the well.
For example: 1 acre @ 15% royalty and $45/bbl, = $2,106.
But this will be paid out over 25-30 years, so the time value of money is key. The true value will be much less than this figure depending on the discount rate used. A wild stab at a fair number would be 1/3 of this value or about $700/acre.
Please understand that the preceding is merely an attempt to show you how such an evaluation would be done and is not intended to represent what I think the fair value of your minerals is. If you are serious about an evaluation and if your ownership is large enough to justify it, you should consider engaging an engineer to do a more rigorous analysis for you.
Wow, I didn’t realize salt water was such an issue there. Hard to get excited about buying out a relative, with that scenario. One would really be betting on higher oil prices and better technology, in the future.
Some limited research, not knowing how true it is, was saying $10K-$14 per acre have been realized. Am guessing these were further west.
Thank you very much for the effort you put into answering my question. Very much appreciated!
Salt water isn't that big a problem or they wouldn't still be drilling wells. There are enough SWD wells there, the salt water wouldn't even have to be trucked they would just lay a pipeline. I wouldn't pay $10k-$14k per acre because the Madison formation is hit and miss even with horizontal drilling, a horizontal well may not produce in paying quantity. I consider the area high risk. A well could be drilled and oil not be found in paying quantities. The operators in the area might pull back and decide to develop more of what they already have leased. In the very unlikely event someone got 10K-14K in that area I consider it likely they already had good production on a working interest that would pay the buyer back within 5 years. I really find those prices hard to believe for that area.
I went non-consent for my acres in Dunn and McKenzie counties and the acres pooled with mine have produced 4 million barrels of oil and the various operators are going to increase the number of wells by 50% soon, I already have the well proposals. I just participated outright in my first well and the highest offer I have ever received was $9k per acre. Not bragging, just to illustrate how far off 10-14K dollars is for that area.
If you buy it at $10,000 and participate it might be 5 years or more before the ink turned black and that is if they hit a well as good as any within 5 miles. The ink may never turn black. If you bought the acres at $10,000 per acre and got an excellent lease it might take 20 years to never before the ink stops being red at that price. If you looked at the GIS map you could find sections with 20 vertical wells where they were looking for the Madison and maybe got 1 or 2 poor wells that barely paid to operate them. Your area is the Madison, not the Bakken. The Madison can be elusive.
I’ve got an opportunity to perhaps buy for <$1000 per acre. Would most likely be an investment for maybe 10 years out, if I proceed.
Thanks again, for all your input and expertise.
That is a reasonable price but it is a gamble. If there is an existing lease it may expire and allow you to recoup as much as 10% of your investment if you lease. I know I was fairly pessimistic above but it's same advise I give myself.