My 71 year-old mother has inherited mineral rights to a very small parcel of (.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. Is the 6569 a well, and if so, how do I know if it is a producing well, etc.? My mom has not received royalty checks to date.
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 or if she should just sit on the tiny bit she currently owns. Any advice and information on these specific mineral rights would be greatly appreciated.
WEISZ 1-2H (is the name of the well) #6569 is a salt deposit well that you don't care about
went active in October....why no royalty yet? a) not unusual at all for these guys to take close to a year if not a year if not told. b) if title not clear due to probate and c) both a and b
You should give your mom the money if she needs it and buy it together....you will benefit more from buying than your mother.......
My emphatic advise is to buy!
(me, I am a mineral owner, and have several working interests, and have gone non consent and one of the wells is a Continental Resources well.)
whoops...i should add that the well has produced a little more than 40,000 barrels so far.
How do we determine what a proper price would be? and if we purchase the entire 3 acres, how do we determine what her "ownership" of the well's production would be - how many others have mineral rights to this well? And is production of 40,000 barrels in 8 months good or bad??
Thanks so much. We (obviously!) know nothing about any of this and any and all help is greatly appreciated!
Proper price? There are people, experts, that can figure that out for you if you were concerned with paying fair market. If the estate said the 3 acres are worth $15,000 then you have a benchmark. I personally would write the check as soon as I could. I feel the acres are worth more because there will be more wells. If you can pay less for them then awesome.
It is producing, on the avg, between 5500 and 6500 barrels a month......so many things go into trying to determine if a well is going to produce 1million barrels or more in it's life or a two hundred thousand barrels. The most important thing, I feel, as far as determining if it is worth buying these days is if it is producing.
It would take me too long to explain in any detail...(that doesn't mean someone else here couldn't do it) just I couldn't.......I am almost sure that the spacing involves 1280 acres. She would or could have 3 of those acres and would receive 20% of the production (minus taxes) from her 3 acres. I haven't leased any minerals so not positive on what they take or don't take........I do get 16% royalty on a carried interest on 2.2acres and it is about $50 to $150 a month producing between 2,000 and 3,000 barrels a months.
The deal is......that spacing will get more wells at some point, best guess between 6 and 14 wells, better wells in the future, and each well should produce for at least 25 years.......you get most of the production in the first 5 years I would say......
I just want to give you the kind of advice I would want. Short and sweet and good. Buy great long term little risk investment.....I believe there is zero chance that you wouldn't recover the money you spent to buy these 3 acres...just how long to recover depends on stuff I can't predict for you
Aimee, the price of minerals is set by a willing seller and a willing buyer. You are buying from family so I would not want to gouge them but there is room for negotiation. 44,853 in 8 months is not fantastic but neither is it bad. You have to remember that you are buying the oil in place, all of it, but subject to a lease which gives you a 20% royalty interest in the production until production ceases in possibly 50 years from all wells drilled in that time. I personally do not think that those in the business of buying and selling mineral acres would pay $5,000 for such small fractional interests in a good but not spectacular area. You might counter offer $4,000 because it's family. Remember though that you will not become rich from owning 3 acres leased at 20% in a good area. If $100,000 worth of oil can be extracted from each of the three acres over the next 50 years, $300,000 X .20 royalty =$60,000 less probably 30% or more taxes, they are not doing you the favor of your life by selling to you. You might do as well to invest $15,000 in a pipeline company as there is about a million miles worth of gathering lines needed in North Dakota. I certainly would not alienate family to make a small profit, nor would I allow myself to be taken advantage of. The real profit of the acres is going to be from more wells being drilled and that might be ten years down the road. I hope this aids in your considerations.
I agree with RW. I think $5,000/acre is too much for those minerals and a counter offer is advisable. She won't get wealthy from the current well. Example: The current well has produced 44853 bbls of oil and they have sold 44595 bbls. The royalty on 3 acres is 3/1280 (spacing acres) x .20 (royalty) = .0004 mineral interest. If the oil was sold for $85/bbl her royalty so far would be (44595 x .0004 x $85 = $1,516) before taxes...this averages out to be about $167/month (so far). At this rate it would take about 7.5 years to get return on her money ($15,000). So, if she can convince the family to sell for less, that will help.
As RW said, the real profit will come when they drill more wells on the spacing.
Ed, You know they will drill more wells, so where is that math? How about just a standard 4 well pad for starters....how long until $15,000 is recovered?.....If I were Aimee's attorney I would take both RW's and your approach to it...If I were the seller's attorney, I would point out the stipulated fact that both of you have stated, and that there will be more wells.
I'm guessing it would be more useful to Aimee if you gave her your opinion on just how much the counter offer should be or how much you think an acre there is worth and how much it will produce over it's life time. How many wells are needed to make $15,000 make sense to you?
Of course they will drill more wells. I have some property/minerals in Williams County that Continental just drilled in March. Almost immediately, they petitioned the Industrial Commission to drill up to 14 wells on that spacing. For Aimee's situation, on May 31, 2012, Continental Resources asked to drill 7 wells on this spacing (Case #17957) in the Pleasant Valley field (They drilled the first well July 2013). On February 27, 2014, Continental asked the Industrial Commission to redefine the field limits to determine proper spacing of additional wells (case #21804).
The main question is....when will they drill those other wells?....will it be later this year, next year, 5, 10, 15, or 20 years from now. If they were to drill the 6 additional wells this year, it maybe worth the $15,000, but that is the big question. Currently there are no additional permits to drill on this spacing, so my guess there won't be any additional drilling anytime soon. There are too many variables right now; when will they drill; how many will they drill (6 or will they drill more); what will be the price of oil then, etc.? In May, ND crude was selling for about $93/bbl, while this winter it was in the $85 range.
If I were Aimee, I would counter the family with a lower price.
Thanks Ed and everyone for your help and information. Please keep the information and advice coming. I really do appreciate it. Anyone else have an opinion on the value of the 3 acres with one active well that has produced ~45,000 barrels to date?
sure...i would too...but I certainly would get those minerals. Some of you must have great fortune in your other investments if $15,000 invested in these 3 acres seems risky. I have watched $15,000 evaporate in less than a minute to never come back...poof....so maybe I am bias towards a sure thing....this is better than a savings bond in my opinion............I should also point out that I am thinking about Aimee's future from this, not her mother's.
Yes, this would be for my future and my sister's and her children. I would give my mom the money to purchase the 3 acres, and split the royalties with her for the duration of her life. When she passes, my sister and I would then inherit the mineral rights. I am definitely thinking of this as a long-term investment, not a short-term way to make a quick buck.
Aimee, you could tell them to go ahead and market the minerals to value them but to give you first right of refusal. A reasonable price between oil companies might be $25,000 per acre as leased acres at 80% net revenue interest, sold outright. They are asking 1/5th of the price but you are only getting paid on 20% royalty interest, and you are not an oil company that will clear 60% of what the acres produce. I don't believe a professional buyer would pay $5,000 per net mineral acre for those tiny interests leased at 20%, nor should you.
I you are the one providing the funds for the purchase, I would suggest buying them for yourself. If your mom passes and the minerals you paid for are split between you and your sister it could get ugly. It may not be a lot of money coming in now but down the road it could be substantial. I would have your sister buy half as well and put the minerals in your names. When your mom passes her minerals will be split between the two of you.
Aimee, you mention "The estate is saying the 3 acres are 'valued' at $15,000." Is that what the IRS valued them at during the settling of the deceased relative's estate? I have been wondering how the IRS would appraise producing minerals for estate tax purposes.
Aimee, the current owners have already received their bonus for signing the lease and they are asking too much. Deduct the bonus and the past production payout from the value per acre and start by offering them $2,500 an acre and see what they say. If your Mom can pay for it keep it all in her name, and set up a quit claim in you and your sister's name to cover the transfer of the property from your Mom to the two of you when she passes. We did this and it will satisfy the probate court in North Dakota and bypass the probate mess. The math you were given earlier confirmed the monthly income is minimal at best until they drill more wells, but that could take several years. The key to all this oil production is patience. This whole thing could be a nice gift for you and your sister rather than a good revenue source for your Mom while she is alive. We used Michael Maus in Dickinson, ND to legally handle the quit claim and our probate process for my Mom while we were learning all of this for two properites she inherited. His contact is 701-483-4500, maus@mnattys.com. He is very good and very fairly priced.
Aimee, the current owners have already received their bonus for signing the lease and they are asking too much. Deduct the bonus and the past production payout from the value per acre and start by offering them $2,500 an acre and see what they say. If your Mom can pay for it keep it all in her name, and set up a quit claim in you and your sister's name to cover the transfer of the property from your Mom to the two of you when she passes. We did this and it will satisfy the probate court in North Dakota and bypass the probate mess. The math you were given earlier confirmed the monthly income is minimal at best until they drill more wells, but that could take several years. The key to all this oil production is patience. This whole thing could be a nice gift for you and your sister rather than a good revenue source for your Mom while she is alive. We used Michael Maus in Dickinson, ND to legally handle the quit claim and our probate process for my Mom while we were learning all of this for two properites she inherited. His contact is 701-483-4500, maus@mnattys.com. He is very good and very fairly priced.
Bob Kelley, MM was our attorney, too, and he has retired and turned his clients over to Mackoff Kellogg Law Firm in Dickinson.
Liz Cantarine said:
Bob Kelley said:
Aimee, the current owners have already received their bonus for signing the lease and they are asking too much. Deduct the bonus and the past production payout from the value per acre and start by offering them $2,500 an acre and see what they say. If your Mom can pay for it keep it all in her name, and set up a quit claim in you and your sister's name to cover the transfer of the property from your Mom to the two of you when she passes. We did this and it will satisfy the probate court in North Dakota and bypass the probate mess. The math you were given earlier confirmed the monthly income is minimal at best until they drill more wells, but that could take several years. The key to all this oil production is patience. This whole thing could be a nice gift for you and your sister rather than a good revenue source for your Mom while she is alive. We used Michael Maus in Dickinson, ND to legally handle the quit claim and our probate process for my Mom while we were learning all of this for two properites she inherited. His contact is 701-483-4500, maus@mnattys.com. He is very good and very fairly priced.