I inherited an overriding owner interest in some mineral rights several years ago. The rights are located in Lea County, NM.
I have been receiving monthly royalty checks through Devon Energy from this interest. The amount each month is fairly predictable and steady, and most of it is from Oil. I don't really "manage" my rights, just deposit the checks into savings and pay the taxes.
Recently I've been approached by someone who wants to buy my rights. When I do the math on the amount they offered, it would take about 12 months of royalty checks to make up that amount, assuming my royalty amount remained about the same as it was last year.
I don't need the cash, so I am planning on refusing the offer. But I don't know how to even calculate a fair price. I am clearly a novice and wanted some advice on what to say if he counters with a much higher offer.
Thanks for your time!
Twelve months is very low for producing minerals. And probably too low for an ORRI as well. Are you sure as to the interest type (i.e. only an override and not a fee simple mineral interest)? Typical minerals can be purchased anywhere from 25 to 70 times (70 being high) the current monthly royalty, depending on life of producing interval and prospectivity.
Where in Lea County?
Hi Jacob -
There are some exciting new developments occuring in SW New Mexico and a number of counties in Texas in the same area. You did not say what formation your well is producing from, but there are several new ones being developed using the new "Horizontal" Drilling method - you may be included in additional wells in the future.
I would advise that you do not sell your interests, or at least not all of them.
In answer to your question, there are ways for a Petroleum Engineer to determine what sort of production you can expect and for how long (Reserve Studies and Decline Curves) - many industry people will use that sort of detailed information to determine a fair purchase price.
But the simple rule of thumb I was taught when I was younger is to take the average of the most recent 3 months of royalty payments and multiply that by anywhere from 36 months on the low end to 60 months on the high end.
The offer you received was obviously extremely low, even for a first offer. If you were to be interested in selling, wouldn't you prefer to deal with someone a little more respectful of you?
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
I'm honestly not sure what formation they are sourcing for oil... The Section/Town/Range indicated on the Royalty statement is 010/018S/033E, if that helps you identify it. As for whether it's a fee simple mineral interest or an Overriding Owner Interest, I honestly don't know the difference, but I've seen it referred to as Overriding Owner Interest. Is there a way to tell from looking at the Division Order of the royalty statements?
At this point I have no intention of selling and would like to get a little more acquainted with what I do own. It's daunting for someone new like myself. Outside of just hiring a lawyer to pull records for me, is there a way for me to get more information about the properties/interests?
Thanks for the advice!
Jacob
Hey, Jacob -
I can take a look at what is happening around Section 10, T18S-R33E in Lea County for you, but I'm behind on the Day Job so it may be Friday afternoon before I can get around to it (I have several Forum Members I will be looking things up for, but can only do so much in the middle of the week).
Your check statements should have a code, like 1, 2 or 3 or "WI", "RI" or OR" for your interest. Read the columns carefully - there should be one with the heading "Type" or something similar. And then look around in the small print or on the back for some sort of definitions.
If you want to scan one in and send it to me, I'll show you, but you have to accept me as a friend on The Forum for us to exchange personal contact information. Do you want me to send you an invite?
How did you acquire your interests? By Deed or by inheritance?
Charles
Jacob,
I would agree with Charles re: selling your mineral rights and your first instinct not to sell was correct. If it is an override, which the interest type code on the pay stub will tell you, then it is not a perpetual interest and could terminate whenever the lease terminates from which the override is carved or after a term. The life of the override is dependent on the document that created it. If it is a fee simple mineral interest then it is a perpetual ownership, meaning you own it until you decide not to any longer. You cannot "lose" it by operation of law.
A quick check on Drilling Info shows that there are a total of nine wells in the Section currently producing, four of which are owned by Devon (which all look to be on the East Half) and two of those are horizontal bone springs wells. The horizontal Bone Springs play is the current big play in Lea. No new permits in the past year and no new leases within the past five years. Looking in the same township and range, Devon is active and has a couple of permits to the immediate South, one vertical and one horizontal. Additionally, there is a horizontal well permit by EOG to the west (several sections away) in Section 18 that is also targeting the Bone Springs Formation. That permit is a year old and has one more year. Hope this info helps some.
Feel free to ask if you have any further questions.
Brandon