Drilling in Berthoud


#1

Hi guys,
I have a few questions…
We leased our mineral rights (on 5 acres) with a signing bonus and at 18% royalties. And now are receiving offers for 100k to buy our lease?
I’m not sure about the actual well… but the paper work says Enright 5,7 and 9
(SWSE, section 18, Township 4 N, Range 68 West, 6th P.M.)
My first question is:
•Has anyone received offers on leased mineral rights?
•How do I know if this well is producing?
•When could I expect royalty checks if they started construction of the site in May 2018?
•Does anyone have any experience is mineral right royalties actually being more profitable than the offers they received?
Any information would be appreciated!
Thank you!


#2

Generally people offer to buy your mineral rights when they think they can make a tidy profit in the long run. It is usually to your benefit to keep your mineral rights and take the profit over the long haul if you can. If for some reason you need money now then you could consider selling some or all of your mineral rights. Without knowing the details of what the value of your mineral rights are, it is difficult to advise you. I have some leased mineral rights that are scheduled for drilling in the first part of next year and have had about ten offers to buy my mineral rights. Since I am in no dire straits for money, I plan to wait and see what happens if and when they drill. If and when they drill are based upon a number of factors, including the price of oil per barrel. The value of your mineral rights is also governed by the price of oil and what happens in the Middle East.


#3

This is purely time, value money. If you think you are better off with money today allowing yourself to re-invest that capital into a less risky and/or more informed investment, then taking the money may be the better option. With drilling, there is inherit risk due to commodity volatility, operational risk, development risk and also geologic risk. On average, it will take 3-5 years for you to earn the equivalent of what a buyer is willing to pay you today. Again, the exercise is, if you think you can invest the lump sum in a better performing asset today rather than wait, then taking the money is probably a better path.


#4

Anna, first and foremost your $100K offer for 5 net mineral acres is right at fair market value. Extraction’s Enright wells are drilled and waiting on completion which means they should be producing sometime in the near future. Once production starts you may have to wait up to 3 months before receiving your 1st royalty payment. With regards to royalties being more profitable than offers to purchase there’s a multitude of things to consider. Production is an unknown, if the wells produce a large volume of oil and gas your royalties may exceed a lump sum. Conversely less than margin production would net you lower profitability. Another key factor to keep in mind, royalty payments are taxed as ordinary income while most sales (as long as you owned the minerals for over a year) would have, at most, a 15% long term capital gains tax rate applied.

Be careful taking advice from people on message boards. As evidenced by the multiple responses Ive read there are plenty of people who opine on these matters that are not well educated in oil and gas, mineral rights, production, permitting and tax laws. I hope this helps. Best of luck.


#5

Hey Anna,

You can keep track of the activity in this area by looking at the COGCC website or our own. I pulled a screenshot from our website and you can see it below.

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