Within a couple months my royalty payment is down to half of what it
was 3 months ago. I know some decrease is normal but found it interesting
to get an offer to buy my mineral rights. The offer had a 2 week rush on it.
What does anyone else think?
Katherine:
Both decrease in production and offers to buy minerals are common in this industry. There could be many variables as to why the production has declined but it is normal for every well to decline over the initial production stage. You might want to google" decline curve" in the box at the upper right of this page and view many posts related to this topic. As the well ages, some operators install downhole pumps which work to increase declining production. In regards to offers to buy, many companies send these offers to buy existing minerals, both producing and non-producing, in hopes to gain long term investments at a minimal cost. Since 2004, I have received numerous offers to sell, all of which was ignored. Again, read up on these various posts regarding decline curves as the information is very good.
The question is do you want to sell or are you happy with the amounts you will be receiving with the decline? According to some experts there will be a 75% decline over the life of the well. If you can live with that, then you should have no problems. If not, take the money and let someone else worry. I will be selling 25% of my well as has another family member. The irons are very hot right now. Not everyone who sells is crazy. It depends on your age and lots of other factors. Our 73 year old relative just sold 25% for close to 1/2 million dollars and he is sleeping like a baby!
Thank you Charles, you are right there is sure a lot of informationon the declining curve.
charles s mallory said:
Katherine:
Both decrease in production and offers to buy minerals are common in this industry. There could be many variables as to why the production has declined but it is normal for every well to decline over the initial production stage. You might want to google" decline curve" in the box at the upper right of this page and view many posts related to this topic. As the well ages, some operators install downhole pumps which work to increase declining production. In regards to offers to buy, many companies send these offers to buy existing minerals, both producing and non-producing, in hopes to gain long term investments at a minimal cost. Since 2004, I have received numerous offers to sell, all of which was ignored. Again, read up on these various posts regarding decline curves as the information is very good.
Thanks Cookie.
Cookie Gartner said:
The question is do you want to sell or are you happy with the amounts you will be receiving with the decline? According to some experts there will be a 75% decline over the life of the well. If you can live with that, then you should have no problems. If not, take the money and let someone else worry. I will be selling 25% of my well as has another family member. The irons are very hot right now. Not everyone who sells is crazy. It depends on your age and lots of other factors. Our 73 year old relative just sold 25% for close to 1/2 million dollars and he is sleeping like a baby!
It has been my experience that the first royalty checks represent that production from the beginning until all of the paperwork and legal work has been done. Therefore, it usually is a real good check. Most companies pay royalties two months after the fact. Also, they may not be using your well for some reason. The product price may be too low; there may be not enough capacity in the infrastructure. There are a lot of reasons they are not using the well to its full production capability.
Thanks Robert
Robert V. Gill said:
It has been my experience that the first royalty checks represent that production from the beginning until all of the paperwork and legal work has been done. Therefore, it usually is a real good check. Most companies pay royalties two months after the fact. Also, they may not be using your well for some reason. The product price may be too low; there may be not enough capacity in the infrastructure. There are a lot of reasons they are not using the well to its full production capability.
75% decline over the life of the well? The life of the well would have a 100% decline at the end, would it not?
Cookie Gartner said:
The question is do you want to sell or are you happy with the amounts you will be receiving with the decline? According to some experts there will be a 75% decline over the life of the well. If you can live with that, then you should have no problems. If not, take the money and let someone else worry. I will be selling 25% of my well as has another family member. The irons are very hot right now. Not everyone who sells is crazy. It depends on your age and lots of other factors. Our 73 year old relative just sold 25% for close to 1/2 million dollars and he is sleeping like a baby!
Tom:
It is somewhat of a guess as to the % decline over the life a well since each well is different. In the past, when a well production drops below profitable margins, it is sometimes plugged which has been the case on numerous old vertical wells. The well was actually still producing but the cost to maintain the well outweighed the production. Since the price of oil has skyrocketed, many of these wells have been re-entered.
Thanks Charles
charles s mallory said:
Tom:
It is somewhat of a guess as to the % decline over the life a well since each well is different. In the past, when a well production drops below profitable margins, it is sometimes plugged which has been the case on numerous old vertical wells. The well was actually still producing but the cost to maintain the well outweighed the production. Since the price of oil has skyrocketed, many of these wells have been re-entered.
I think my point was missed. I was just being a bit cheeky.
It is not a "guess" as to the % of decline over the entire life of a well. At the end of the life, or death, of a well, production will be zero. Zero=100% decline from any previous production number.
Now, you could say a well has a 75% decline in the first [x number] of years and that could be accurate. But, when the well is no longer producing, no matter what it was once producing, I can promise you that the decline is equal to 100%.
It was a bit of a joke. That's all.
charles s mallory said:
Tom:
It is somewhat of a guess as to the % decline over the life a well since each well is different. In the past, when a well production drops below profitable margins, it is sometimes plugged which has been the case on numerous old vertical wells. The well was actually still producing but the cost to maintain the well outweighed the production. Since the price of oil has skyrocketed, many of these wells have been re-entered.
Tom,
I got the joke but here is an answer that one may consider when looking forward to payments.
The decline of the wells is severe the first 2 to 3 years. I am declining my spread sheet by about 10% per month for that time. Then, after the first few years, they say, ( we all know who "they" are, right?) the decline drops to a steadier income over the life of the wells. All in all, it is supposed to be 75% decline. Choking is supposed to stop that nonsense but since oil and gas experts have no way to predict the future and only the past, let's all hope for the best.
Cookie Gartner said:
Tom,
I got the joke but here is an answer that one may consider when looking forward to payments.
The decline of the wells is severe the first 2 to 3 years. I am declining my spread sheet by about 10% per month for that time. Then, after the first few years, they say, ( we all know who "they" are, right?) the decline drops to a steadier income over the life of the wells. All in all, it is supposed to be 75% decline. Choking is supposed to stop that nonsense but since oil and gas experts have no way to predict the future and only the past, let's all hope for the best.
The well I have is only 6 months old . I have only recieved 4 royalty payments.