You were on the right track thinking you can lease it over and over every few years for what “they” want to buy it for… Well, maybe not right now, but when oil goes back up, which it will. So… Oh, heck I’ll be the first to say you can never say never, I’m just saying, I definitely don’t think now is the time to sell unless you absolutely NEED to, and that can definitely happen.
I didn't think now would be a good time to sell, either, with the price of oil where it's at, but they sent me an unsolicited letter, which would seem to indicate they "know something". They call it a "high-priority area" and are offering "top dollar". I've asked them for a number for purchasing and leasing. If they come back with the same price for either option, they will certainly have to explain why I would even entertain the idea of selling the rights for same price as leasing them for 3 years.
You tell me what the total would be for a two-year lease for three acres @ 1,000/net mineral acre. And what a three-year lease would be for three acres @ $1,000/net mineral acre! Seriously, if you figure this out you will understand, I think. Linton
A 2-year lease for 3 acres @ $1000 per acre (2 x 3 x $1000) = $6000. A 3-year lease for 3 acres @ $1000 per acre (3 x 3 x $1000) = $9000. This proves with everything else equal, a 3-year lease pays more than a 2-year lease. I think I already knew that.
You’re still not getting it. It’s 3 acres x $1,000 = $3,000, whether it’s a two-year lease or a three-year lease.
If it’s a 2-year lease, in two years, under same terms, you would get another $3,000. If it’s a 3-year lease, in three years, under the same terms, you would get another$3,000. Get it?
Sure, but nobody is talking about a 2-year lease. The comparison is a 3-year lease vs. a purchase, which I'm told here is 3 x the annual lease price. Last time I checked "annual" means yearly; in other words, 1 year.
Jerry, I just used those as examples to try to make it simple for you. I was just trying to help because I realized you still weren’t understanding. And in order to make that “prudent decision” you were talking about, you really need to understand the mathematics behind the lease vs. purchase, no matter what the terms are. Linton
A three year lease that pays $1,000 per acre PER YEAR... well, I've never seen that though I suppose it could happen. A 3 year lease is generally based on the signing bonus of X dollars for a term of 3 years at a royalty rate of X (say 3/16th). Therefore, when they said they would get $1,000 I assumed that is the bonus money. 3 x the bonus money is $3,000. You have a very unique lease if it pays $1,000 per acre per year...In that case, some discounting would apply though, since you have to wait on your money each year and the leasehold might decide not to pay it in year 2 and simply drop the lease.
So a fixed 3 yr at $1000 would be valued at $3,000
An annual $1000 would total $3,000 over three years, and that would be $9,000 less some discount for the risk and time value of money waiting to collect on those two years of payments in the future.
I valuing property over 15 counties or more over the past 10 years, I think the deed I posted is one of the highest per unit acre I have seen sell. $5,100 per acre. A few Chesapeake bought several years ago were in the $7,000-8,000 per acre range. Those are rare. Also, if you are already leased, buyers of minerals will pay less for a 1/8th lease than a 3/16th lease but will pay the most for land not leased yet.
In simple terms, every sale transaction, including Mineral Deeds, begins with negotiating an acceptable offer. Only until the offer is accepted and it's put in writing and signed, does it become a contract. And, if the closing goes well, a sale is consummated.
If you want to "consider" selling, then tell Myrick to make you an offer and put it in writing. That may open the door for negotiations, or it may be their first, last, and only offer. You will probably know what direction you want to take after you see their offer in writing. I notice that you use the word "fair" a few times. Remember, a fair price is what someone is willing to accept.
Frankly, I'm one of those who always say "never sell your mineral rights."
Good luck,
Pat