I don't think it would be worth the tax hassle. It won't make you rich even in your wildest dreams because it is so small. If it were me I would put Greg, Andrew, and Austin in a bidding war to buy it.
If you know how many mineral acres you own out of the whole you can figure what your decimal interest is. This website will show you how to do that:
http://www.mineralweb.com/owners-guide/leased-and-producing/royalty-calculator/
If you know your decimal interest, you can then do a prototype of what a royalty payment for a month would be, (but this is just a learning exercise - don't count on anything) something like this:
Decimal Interest Calculator for Crude = .004 x PPB x # of barrels of oil produced per day per well
PPB being price per barrel - assuming 100 barrels of oil produced per day -
Royalties are usually paid based on an average price of one barrel of oil, so if the average price was $100.00, and there were 30 days in the month, and the decimal interest was .004, the royalty payment would be $1,200 less expenses IF they weren't negotiated out of the lease. PLUS, there probably would be gas income and plant product income, which is often equal to just a little less than the oil income. Using these figures, the monthly income could easily exceed $2,000.
I just can't understand why you are being asked to buy into the cost of the well - oil companies LEASE your minerals - they pay YOU.
This was for 2010 - things have really changed then, but gives you some insight as to the leasing bonus rates, though not in your county - this is why it is a good idea to share information makes negotiating for a fair lease much easier (especially if you have an oil/gas attorney). I found this information in another forum:
Please also review the following document:
http://www.rigzone.com/data/analysis/2010_Q1_landRigReview.pdf
Pay particular attention to the information starting on Page 6. Here's a copy and paste:
North Dakota’s recent oil and gas lease sales have been off the charts. The sale held in November 2009 fetched record high proceeds of $71.6 MM, and the February 2010 sale fetched $47.4 MM. To put this in perspective, these two lease sales alone generated proceeds that exceed the sum of the 55 prior lease sales in North Dakota going back to 1995. The hottest counties are commanding big premiums. In November, Mountrail leases averaged around $3,600 in bonus/acre, and McKenzie county acreage led the state in February 2010 with an average near $2,160 bonus/acre – both well above historical averages. While acreage uptake has been impressive, much of the record proceeds have been due to the ramp in bonus/acre – an indication of increased operator interest and competition for land....
Susan, I like your information but then it all comes into question when you say something like this....
"I just can't understand why you are being asked to buy into the cost of the well-oil companies LEASE your minerals-they pay YOU."
The reason she would PAY to play is so she would get a 100% share and not a 25% share. I don't think I am oversimplifying this statement--when you lease, even at 25%, you are SELLING 75% of your oil to the lessee.
You can't imagine how happy I would be if there was any chance in this world that owning .083 of a mineral acre could result in a $2,000 a month royalty. Could you redo the math for her? She has I believe, .083 of an acre......oh, and no three way bidding battle including me in it. I said early that it wouldn't be work the paperwork time. Everybody should become familiar with the term "fractalization", this is a very very good example of it. A reason to consider putting minerals into Trusts.
It wasn't clear if she was talking about decimal interests or percentage of mineral acres she owned. I was addressing the DECIMAL interest - I was not averaging state lease sales - this was royalty income based on the average of all daily cost of oil per barrel - two different topics.
Andrew Babcock said:
Susan, I like your information but then it all comes into question when you say something like this....
"I just can't understand why you are being asked to buy into the cost of the well-oil companies LEASE your minerals-they pay YOU."
The reason she would PAY to play is so she would get a 100% share and not a 25% share. I don't think I am oversimplifying this statement--when you lease, even at 25%, you are SELLING 75% of your oil to the lessee.
You can't imagine how happy I would be if there was any chance in this world that owning .083 of a mineral acre could result in a $2,000 a month royalty. Could you redo the math for her? She has I believe, .083 of an acre......oh, and no three way bidding battle including me in it. I said early that it wouldn't be work the paperwork time. Everybody should become familiar with the term "fractalization", this is a very very good example of it. A reason to consider putting minerals into Trusts.
As I said, the way she wrote it wasn't clear to me. As it stands now, I have learned something new from you - thanks!
So much to learn, so much to misunderstand, so much to not understand at all. If there is something really confusing to me, I ask Mr. Cotton - I value what he has to say very much.
Propinquity! How are you, my friend? Do you have your share of snow yet?
Yours,
Wes
Susan Nolen said:
So much to learn, so much to misunderstand, so much to not understand at all. If there is something really confusing to me, I ask Mr. Cotton - I value what he has to say very much.
I thought I was starting to understand this stuff? Who's opinion should I believe?
I imagine if we were all on the same page the opinions would be very similiar.
If Pam owns .083 mineral acres, which makes sense because her contribution to a $7million well is just $328.00 That should be the threshold amount of money she should invest in this whole venture. I do think accepting a $41.50 bonus to lease at 18% is silly. I would check the box to participate, pay the $328, when the distribution deed comes make the arrangement to be paid once a year, at the end of the year, and use that money on dinner and a night out...Cara, most of the divergent opinions are due to a bunch of decimal points.
I would think the operator would pay a couple thousand dollars for it to simply reduce the accounting and paperwork. I think they would recover that much in ten years and any production could be considered pure profit. It might be hard to get the concept across, as many landmen are only used to dealing with uninformed mineral owners. Persistance is key sometimes.
Yep, those decimal points and decimal interest and other lingo are very confusing, but it's a nice forum and nice people and I enjoy it very much!