We have been getting offers for Sec 27 & 22 of Township 19 South, Range 33 East in Leah County, NM. Is there something happening that is causing this interest? What is the best way to determine the value?
You have a rig onsite in 15 drilling south through 22 & 27 for quite a few Moonraker horizontal wells. Two more wells are permitted for 15 & 22. Value is based upon your net mineral acres, your royalty and how many final wells there will be. What you are being offered is likely less than the value the buyer intends to get out of the deal.
Federal land so you presumably have an ORRI and zero net mineral acres or royalty rate. Multiple leases cover that area, so kinda depends on which ones you have an ORRI in.
But like Martha said, Moonraker wells being drilled in W2 of 22 and 27. And like she said, clearly anybody offering you X thinks they can get more than X out of it. Chances are that has to include them assigning some value for wells beyond what is currently known (i.e. not just the Moonraker wells being drilled). It’s just a matter of do you want X up front or wait around and see what the future brings.
My $0.02. Value is subjective. For you, the best way to determine the value is to have a whole bunch of people offer you something for it. That doesn’t mean you have to sell it, but that’s how you are going to know what you can convert it to for cash today. If you aren’t going to sell it no matter what, then whatever, it’s value is infinite or whatever anyone will loan you against it. IMO, the best way to “value” something is to construct some reasonable development plan for the acreage over the next 10-20 years, turn that plan into oil/gas volumes and into future cash flows, discount those cash flows back to today at a discount rate > 15%, and that NPV is your value. If that sounds insane, that’s because it’s beyond the scope of what is reasonable to expect people to do.
So you either ask the general public here what the value is and they will tell you that you should never sell it. Or you ask mineral buyers what the value is and they will offer you some amount of money for it. Or you hire a consultant who will do some math and tell you the value. Or you just ask me and I’ll WAG some value based on having done the math 1000s of times. Or, if its enough NRA (say > 20) you ask EnergyNet or Simon or RedOaks or somebody to market this for you and they probably do a better job of getting you offers higher up the food chain.
Fwiw, I would say the W2 of Sec 22 and 27 is “valued” at $16-18k per NRA and the E2 of Sec 22 and 27 is “valued” at $12-15k per NRA. Anything less than that and I would not consider selling it. But that is just me, I’m some guy with nothing better to do than post a forum at 9am on a Monday which may disqualify me right out the gate.
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Great comment @NMoilboy
W2 is more like $20k/nra. E2 is closer to $15k-$16k. For my group anyway.
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You’ve got barnburner 2nd Bone Spring Sand wells just a couple miles west that, if you could guarantee comparable performance, would justify holding firm — I wouldn’t sell for less than ~$30,000 per NRA under those circumstances. But the reality is, if the same bench (the 2nd Bone Spring Sand) performs more like it does a couple miles to the northeast, then the offers you’re seeing now actually represent a solid deal. That’s the main value driver in the immediate area. The 1st and 3rd Bone Spring sand reservoirs have far fewer offsets and of those offsets, they display lower oil cuts and even more variability in performance relative to the 2nd BSS.
From what I’ve observed, not enough discussion on the acquisition side accounts for just how variable performance and resulting cash flows can be across that area. It’s a risk to sell, and it’s a risk to hold — that uncertainty cuts both ways. My net-pay mapping suggests your tract is likely to behave more like the wells to the northeast/east than those robust offsets to the west.
From that perspective, I think the current offers are reasonable. If you do decide to transact, I’d encourage you to structure it, so you only convey the Bone Spring rights and retain some upside. That way you capture current market value while keeping participation in any longer-term upside.
I sure appreciate your response. We are pretty much flying blind. My MIL passed away and didn’t give the family much info. I have tried doing some research, but I’m way outside my skillset. My brother-in-law has been fielding the calls and they seem to be increasing.
Thank you for responding!