Need advice on offer

Hi, I have been lurking here off and on for awhile, trying to understand this mineral stuff. My husband has 2 properties in TX that he inherited and has been getting about $100/year from each property the last couple of years. His sister helped him sell part of one property a couple of years ago. She told us they sold it all, but he still gets checks so I guess they only sold part of it.

We don’t know much at all about this. We would like to sell the properties if we got a good offer. We were contacted by Flatland Minerals last week saying to contact them if we were interested in selling. We emailed them a copy of the check statement for one property. The other property we haven’t gotten anything from since last fall.

Flatland Minerals replied, saying, “Let me get an evaluation together for you. Is there an offer that moves the needle for you?”

We have no info at all aside from the check statement, (which I am attaching here) so we really don’t know what a good offer might be. Any suggestions?

Check statement with personal info blacked out:

Oh, also just looked back in my emails where someone was able to tell me where this property is.

They said, “Endeavor Energy check is for a well in Midland County, TX located within “Abstract 492” of T-2-S T&P Survey. The “Tatum 1” was completed in 1975 near the border of Midland and Glasscock counties (see attached map with green dot)”

Flatland is a decent buyer and I’ve seen them get very competitive and beat out some other buyers in areas they’re really interested in. They’ll likely hold it and not flip it. However, I don’t really like the “what price do you want?” tactic. Typically whoever names a price first is in the worse negotiating position, not that you’re obligated to do anything. Your best bet is to ask what they’ll pay you, and then ask some other mineral buyers active in Midland County what they would pay for it and get a feel for what the market currently is.

In general, I am with CTucker on this. They are basically asking you to bid against yourself and simultaneously testing your knowledge.

Your very first question to any potential buyer should be how many net royalty acres you own in each tract. That is the basis for which to compare offers and the basis upon which minerals in this area are traded. This is not always true, but it is in this area. There are people on this forum that can tell you what the going rate is per net royalty acre in that part of Midland County, where dozens of buyers are still active despite the downturn.

Based on your check stub for Tatum lease the you’d have 1.00 net royalty acre.

It looks to me like you have 1 net royalty acre. Assuming the old Tatum RRC paperwork is correct and there are 160 acres dedicated to the well that you have a .00078125 NRI in. Ah ColoradoSlim beat me to it.

Your check stub represents one old vertical well making 10 bopd. It’s possible that you could, in some timeframe, have 10 horizontal wells in that 1/4 section that come online making considerably more. Key word being possible. So, yeah, your check stub doesn’t really correspond to what a decent offer is. On some level, buyers hope that you will sell for some multiple (50, 60, 100, ?) of your current cash flow because you don’t know that anything else could happen. Most will make you an offer that pays you for some fraction of what could happen, which, IMO, can be pretty fair as there is a risk that any more wells get drilled. A risk that has increased as oil drops and rigs disappear. Thus, they pay you for a portion of it.

Personally it doesn’t seem bad form to tell somebody what you would sell your minerals for as it cuts to the chase in what can be an annoying process, but if you have no idea what your minerals might sell for, then yeah, bad idea to just blurt out some number.

Random dude’s opinion: They should probably pay you somewhere around $10k per net royalty acre there. In these times. With sub $40 oil and Endeavor running one rig in the Permian. So like Tom said, ask them what they will offer you per net royalty acre. If its around $10k or more than I’d say ts not insulting and then you can decide if you want to sell or negotiate more or whatever. In the end, you don’t have a very big interest, it may not be real easy to get a range of competing offers to compare.

Good luck

Having looked at the RRC gis map, there is now a deeper horizontal well operated by Fasken that runs the entire height of this quarter section where this “Tatum” well is located. Fasken drilled a well one and a half miles north which terminates at the southern end of this section and included the W/2 of the NW/4 of Section 33 (81acres) by combining three stand up 80 ( plus or minus) tracts into a drilling unit call the Fasken HALFMANN ‘28’ WB - Well # 1H. The plat filed with the RRC shows this part of 33 (Abstract 492) as part of the drilling unit and is labelled “Tract 3-Endeavor 81 AC.” Two possibilities. There is depth severance and you do not own below where the Endeavor well is currently producing OR Endeavor made a deal with Fasken to join (or farm out) their interest. Either way, if you own in the deep you should be getting paid. I would call Fasken Oil and Ranch, ask for Division Orders, tell them you are an owner in the W/2 of the NW/4 of Section 33 (Abstract 492) and you believe you may own an interest in the HALFMANN ‘28’ WB - Well # 1H and ask what do you need to do to get yourself in pay status. Their number is 432-687-1777. Whether you sell or not, you need to recover any revenues due. LMK if you get stuck.

Midland County? There’s good rock there. I would ask for considerably more per net royalty acre. Maybe double that $10k and ask for $20k. However, $15k per royalty acre is probably more realistic.

By all means, ask for whatever you want.

Oil is $40. Two-thirds of the Permian rigs are gone. It’s Endeavor to begin with, which isn’t great for development. Midland County is pretty good in that its easy to drill, geology is known, well performance is pretty consistent, etc. At $60 oil it gets strip mined in a lot of places. But it’s still Midland Basin, decent but not great. Which means once price goes to a certain point, you really don’t want to drill it. A $7.5m well that makes 575kbo is not very compelling drill economics at these prices, even for a well funded operator. For example, look at XOM, far and away the most active driller in the Permian. They’ve dropped 15 of their 18 rigs in the Midland Basin since March, 13 of 40 rigs in the Delaware. Midland County looks pretty good in Feb 2020, not so good in June 2020. On the forward WTI curve the odds that Endeavor drills a well here in the next 5 years are equal to John Blutarsky’s GPA.

That likely affects what somebody would pay you. I could be wrong.

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