Hello everyone,
My 71 year-old mother has inherited mineral rights to a very small (.26) net acres with the option to buy out other heirs for a total of 3 net acres (gross acres are 160). Location is Town 156 North, Range 95 West of the 5th P.M., Section 11, Williams County. The mineral rights were leased by Continental Resources in October 2013, with a bonus of $2,000 per acre and 20% royalties. Lease term is three years.
Based on the ND IMS viewer, it looks like there is a "horizontal leg" on the parcel and something labeled "6569" in the Pleasant Valley oil field. I really can't figure out how to read this map, so help is appreciated.
The estate is saying the 3 acres are "valued" at $15,000. I'm trying to advise my mom whether or not buying out the heirs would be a good investment. Any advice and information on these specific mineral rights would be greatly appreciated.
Thanks so much.
Aimee
Aimee, over the short term, I would say it will take some years to recover all of the purchase price. It would be much more attractive to purchase before the acctued royalty (on almost 45,000 barrels) has been distributed, if it has not been distributed yet. The main points to me is that whether the royalty to date has been distributed or not, the single well there will pay off the purchase price in the mid term of 5-10 years but all future wells will be profit. It is an excellent investment but not a good short term investment. Since the acres are leased, it's an investment that will have to be held probably for a couple generations to get the full benefit from it as lease and then sell is poor strategy.
Thank you Mr. Kennedy for your reply. Are you saying that there is an producing well on the land? My mom has not received any royalty checks and the lease was just entered into in October of last year. Her share is very small, just .26 net acres. How can I find out what her share of the well's production is, and whether the well is still active? Thanks so much for your help on this. It is all a bit overwhelming and I appreciate the information.
Aimee
Aimee, your mom's fractional acre is pooled with approximately 1280 other acres in the 2 section spacing. There is a well WEISZ 1-2H, spud 7-11-13 Initial Production date of 10-11-2013. IP of 677 barrels on I suspect a tight choke. 44,853 barrels cumulative oil production. 5,886 barrels oil produced in April. All gas is being flared, burnt off.
By my calculations at $85 per barrel oil, your mom's share of the royalty is about 155 dollars before the tax man cometh. This is not counting May production for which I don't have figures. If your purchase is made effective to first production, you could multiply that by 12 for a close approximation of the money already owed to the 3 acres. The latest production figures available are from April but I see no reason why the well would have stopped, the published production figures are always behind.
With one well, it's valuable and worth having but the true profit will come from the more complete development, more wells, in the future. I hope this helps.