I have leased this property before, for a ridiculously low price. I am aware of what is going on in Colorado, and think leasing is a better deal for me. The largest offer is for half of 250 mineral acres. It's for a substantial amount, but I still want to hold out for leasing instead. Am I being foolish.
Kathy
I don’t think selling minerals instead of leasing is a good idea. I feel you are smart in holding out. Let their mouths water some before leasing. : ) I have offers for $1000.00 an acre to buy and have the property leased for $650.00. Wouldn’t make sense to sell, IMHO. I have 54 minerals in CO myself, and am wishing they would get close enough to mine to lease them. Mine are mostly in Las Animas County. : )
I have seen recent horizontal Niobrara wells (Rex Energy BJB 34-14H, QEP Resources 16-4H, Petroquest Peterson #1 to name a few) in Weld and Laramie that were not economical to produce from. To lease at say $650 and sell 1/2 at $1000, your up $1650 per acre and still maintain a 50% upside potential. As Cramer says, pigs get fat, hogs get slaughtered. Or wait around and hold out expecting lease rates to go up higher while they hit a dry hole next to your tract and you make a flat $0 except you get to pay your state tax. Or perhaps better yet, cut your risk by trading say 1/4 or maybe 50 NMA with someone else for their 50 to both spread out the risk. Sometimes crossing your fingers and hoping for the best isn’t always the best choice.
Don't sell your minerals. If you lease for $650 and they don't drill within the 3 year term, if that is what you can negotiate, you can lease again. The next lease may be worth a lot more the next time around. If not, you got your $650 or more an acre and at some point in the future some company may decide they want to lease it from you for the deep rights (you need a horizontal and vertical Pugh clause in your lease).
My parents are deceased, but they would have never believed they would have seen the day leases went for $650 an acre. They were firm believers in keeping your minerals, no matter what, and their doing that has paid off for us children. Hopefully when the minerals are passed down to the grandchildren, it will be valuable for them too.
A man in my hometown was offered $50,000 for his minerals. He sold, the oil company came in and drilled a well, and it was the biggest producer in the area. There is no doubt the oil company had a very good idea before they bought the minerals. Instead of one million in royalties, the man who sold the minerals only got the $50,000 sales price.
Wes Luke said:
I don't think selling minerals instead of leasing is a good idea. I feel you are smart in holding out. Let their mouths water some before leasing. : ) I have offers for $1000.00 an acre to buy and have the property leased for $650.00. Wouldn't make sense to sell, IMHO. I have 54 minerals in CO myself, and am wishing they would get close enough to mine to lease them. Mine are mostly in Las Animas County. : )
I don't think you are being foolish. The going lease rate a year from now may be more than the sale price they offered you, today. You can also tell them it isn't enough money to sell and they may make a better offer in 6 months. How big of a hurry are you? If there is oil down there it has been cooking for millions of years. There will still be a demand for oil next year. Where were these people 10 years ago with their offers to buy ? They want it NOW! It probably isn't in your best interest to sell it to them, now. If I were afraid there wasn't any oil or gas under my land, I'd try wait for the highest offer possible then lease it, because if they drill and nothing is there that may be the end of it forever. Those who lease or sell early don't have the benefit of everyone everyone else who negotiated the going rate to a higher level.
Joe, you might want to check that math. If he sells half of the 250 for $1,000 acre leaving 125, which he leases for $650 he may be up $1,650 for 125 acres but he is at $825 acre for 250 which isnt a huge stretch fron the $650 we are assuming he could lease for. Presumably those who bought his other 125 acres could also lease them for $650 bringing their cost to only $350 per acre. If the lease value rises to $1,000/acre the purchaser could then lease the acres, recoup all the cost, and have a royalty if there is a successful well at no cost. I think the owners risk for waiting isn’t out of line for the benefit.
Mineral Joe said:
I have seen recent horizontal Niobrara wells (Rex Energy BJB 34-14H, QEP Resources 16-4H, Petroquest Peterson #1 to name a few) in Weld and Laramie that were not economical to produce from. To lease at say $650 and sell 1/2 at $1000, your up $1650 per acre and still maintain a 50% upside potential. As Cramer says, pigs get fat, hogs get slaughtered. Or wait around and hold out expecting lease rates to go up higher while they hit a dry hole next to your tract and you make a flat $0 except you get to pay your state tax. Or perhaps better yet, cut your risk by trading say 1/4 or maybe 50 NMA with someone else for their 50 to both spread out the risk. Sometimes crossing your fingers and hoping for the best isn't always the best choice.
rw,
Don't be rude, learn to understand what you read better. I stated "to lease at $650" then sell 1/2, not lease 1/2 and sell the other 1/2 and let's see $650 and $1000 make $1650 so....... not hard to figure out. One thing that I do not profess to be is psychic as one must be psychic to predict the future of oil prices or of any future leasing activity/production on any given tract but I will say look at historical oil prices prior to 2004 when prices were $20-$30 on average and you'd think it were a bubble being up 550% since December 2001. Given, more wells are unconventional (cost more) and then there's the emerging markets but here in the US, Cushing OKlahoma is hitting record levels in storage, even though it's a bottleneck, the Canadian oil sands and N.D. shale production is overloading the storage facility. Just wait till Wyoming / Colorado Niobrara and Eagle Ford ramp up in the next few years. Seems like we just seen this happen with nat gas and look at what happen to that price. Yes nat gas is domestic but for the first time since the 1980's the decline in U.S. production is supposed to be turning the corner. There is no way anyone can predict future oil discoveries or price of oil, to tell someone you know, really you would just guessing. If you tell someone not to sell, back it up with some kind of guarantee that your truly psychic and can predict the future. Tomorrow there could be a major discovery it's bound to happen maybe not cold fusion but something is bound to happen. Otherwise perhaps oil will be up another 550% hitting $583 in 10 years like it just did, $600 for oil in my life time, now I see why you say don't sell.
From the time Kathy had posted her question, I have been watching to see what responses she would be getting and thinking what would I do if I was in her position. First off, what is a substantial amount of money? 1/4 million, 1/2 million or 5 million. I think we all could have a different beginning point for a substantial amount of money. If some leases are $650.00 plus per acre, a 1/4 of a million really isn't that much more to me and I wouldn't sale. At this point Kathy doesn't have the property leased, maybe she will find someone to lease it for a fair price. If I am understanding Kathy correctly, she has only received an offer to purchase 1/2 of her mineral rights for who knows for how much.
Now this is something to think about. You lease the property, they drill, find gas or oil and the leasing co doesn't setup to a well but caps it. According to the lease I have in front of me, you get paid a big $1.00 per acre per year. HMMM now where am I standing. That substantial amount of money may look good. I have heard of this happening in WY, don't know if there is a reason or not. Don't know the actual information, but I know this is possible in my lease (not signed). The shut -in royalty clause doesn't have an end date, so I would assume it could be for the rest of my life (only 44) plus. I wouldn't be able to lease it again because I would be getting my big $1.00 per acre check per year. On the other hand, they could hit, setup a couple wells and you may be set for many years. Before you sale, see if you can get some offers for lease 1st. Then go about your decission making.
Kathy, whatever you decide, don't look back. We only have 20/20 when we are looking back and there is no crystal ball for the future.
Mineral Joe said:
rw,
Don't be rude, learn to understand what you read better. I stated "to lease at $650" then sell 1/2, not lease 1/2 and sell the other 1/2 and let's see $650 and $1000 make $1650 so....... not hard to figure out. One thing that I do not profess to be is psychic as one must be psychic to predict the future of oil prices or of any future leasing activity/production on any given tract but I will say look at historical oil prices prior to 2004 when prices were $20-$30 on average and you'd think it were a bubble being up 550% since December 2001. Given, more wells are unconventional (cost more) and then there's the emerging markets but here in the US, Cushing OKlahoma is hitting record levels in storage, even though it's a bottleneck, the Canadian oil sands and N.D. shale production is overloading the storage facility. Just wait till Wyoming / Colorado Niobrara and Eagle Ford ramp up in the next few years. Seems like we just seen this happen with nat gas and look at what happen to that price. Yes nat gas is domestic but for the first time since the 1980's the decline in U.S. production is supposed to be turning the corner. There is no way anyone can predict future oil discoveries or price of oil, to tell someone you know, really you would just guessing. If you tell someone not to sell, back it up with some kind of guarantee that your truly psychic and can predict the future. Tomorrow there could be a major discovery it's bound to happen maybe not cold fusion but something is bound to happen. Otherwise perhaps oil will be up another 550% hitting $583 in 10 years like it just did, $600 for oil in my life time, now I see why you say don't sell.
Your math breaks down either way, and you can’t have it both ways. If you lease it all the sale price will not still be $1,000 per acre. With your crystal ball, will you tell us where anyone can sell leased acres for the same price as unleased? I wasn’t trying to be rude. I was trying to point out an inconsistancy. You must be assuming that leased acres sell for the same price as unleased. Feel free to correct me if I make a similar mistake, and don’t worry; I won’t consider it rude.
Mineral Joe said:
rw,
Don't be rude, learn to understand what you read better. I stated "to lease at $650" then sell 1/2, not lease 1/2 and sell the other 1/2 and let's see $650 and $1000 make $1650 so....... not hard to figure out. One thing that I do not profess to be is psychic as one must be psychic to predict the future of oil prices or of any future leasing activity/production on any given tract but I will say look at historical oil prices prior to 2004 when prices were $20-$30 on average and you'd think it were a bubble being up 550% since December 2001. Given, more wells are unconventional (cost more) and then there's the emerging markets but here in the US, Cushing OKlahoma is hitting record levels in storage, even though it's a bottleneck, the Canadian oil sands and N.D. shale production is overloading the storage facility. Just wait till Wyoming / Colorado Niobrara and Eagle Ford ramp up in the next few years. Seems like we just seen this happen with nat gas and look at what happen to that price. Yes nat gas is domestic but for the first time since the 1980's the decline in U.S. production is supposed to be turning the corner. There is no way anyone can predict future oil discoveries or price of oil, to tell someone you know, really you would just guessing. If you tell someone not to sell, back it up with some kind of guarantee that your truly psychic and can predict the future. Tomorrow there could be a major discovery it's bound to happen maybe not cold fusion but something is bound to happen. Otherwise perhaps oil will be up another 550% hitting $583 in 10 years like it just did, $600 for oil in my life time, now I see why you say don't sell.
Mineral Joe said:
rw,
Don't be rude, learn to understand what you read better. I stated "to lease at $650" then sell 1/2, not lease 1/2 and sell the other 1/2 and let's see $650 and $1000 make $1650 so....... not hard to figure out. One thing that I do not profess to be is psychic as one must be psychic to predict the future of oil prices or of any future leasing activity/production on any given tract but I will say look at historical oil prices prior to 2004 when prices were $20-$30 on average and you'd think it were a bubble being up 550% since December 2001. Given, more wells are unconventional (cost more) and then there's the emerging markets but here in the US, Cushing OKlahoma is hitting record levels in storage, even though it's a bottleneck, the Canadian oil sands and N.D. shale production is overloading the storage facility. Just wait till Wyoming / Colorado Niobrara and Eagle Ford ramp up in the next few years. Seems like we just seen this happen with nat gas and look at what happen to that price. Yes nat gas is domestic but for the first time since the 1980's the decline in U.S. production is supposed to be turning the corner. There is no way anyone can predict future oil discoveries or price of oil, to tell someone you know, really you would just guessing. If you tell someone not to sell, back it up with some kind of guarantee that your truly psychic and can predict the future. Tomorrow there could be a major discovery it's bound to happen maybe not cold fusion but something is bound to happen. Otherwise perhaps oil will be up another 550% hitting $583 in 10 years like it just did, $600 for oil in my life time, now I see why you say don't sell.
Let me restate. If you lease you are conveying away 80% or more of what you may be wishing to sell with only the POSSIBILITY of reversion if the minerals are not produced. I think lease then sell is a poor strategy. How much per acre do you expect them to pay for the remaining 16.67 to 20% that you haven’t conveyed in the lease? The longer the period of the lease remaining the less I would be willing to pay. I would not say you could lease it and then turn around and sell it for the same price as you were offered unleased. I think your sale price will suffer if you lease it first. Someone may have left that part out. If you think this is rude then, I will have to learn to live with that.
We will just to disagree on some things. I am sorry you think I'm rude.
rw,
you contribute a lot to this forum helping many with the issues they have. I mean no disrespect at all and there will always be 2 sides to every story, agreeing to disagree sometimes is all one can aim for.
Thank you all for responding to my question.
Right now, I am reading everything I can find about leasing mineral rights. I know, from the lively discussion you all have been having, that when it comes right down to it, there are pros and cons about either choice, sell or lease. I'm not leaping into anything without knowing a lot more, and, in the end, I will seek legal counsel.
I do know that, from what you have said, that the offers I have received (mid 5 figures to low 6 figures+) are probably higher than normal, which leads me to believe that those making the offers think they "know something" as opposed to "guessing".
I'll be back, if and when I know something for sure.
Thanks, again, Kathleen
I want to thank all of you for replying to my question.
I have been reading everything I can about leasing mineral rights, and some of the issues that you all have brought up have been things I would never have thought about without your input. Thanks, again.
Right now I have a lot of reading, research, and thinking to do. After re-reading your replies, I believe that the offers (one in the mid-5 figures and the other in the low 6 figures+) are, probably, reasonable, but I'm still inclined to hold on to "my" property. I'm sort of like Sylvester, the cat; "it's mine, mine, mine!".
I'm not going to act without more knowledge and, good legal advice. I'll post in the discussion group as soon as I've made a decision.
Thanks, again, Kathleen
Oops! Sorry about the double posting. I got a "reply erased" (or a similar message) on the first one.
Sorry!
Kathy
Kathy,
You have 15 minutes after posting a message to edit it or simply delete it.
Wes Luke