Me and others in my extended family recently received a letter from a landman representing White Harvest LLC with an offer for the mineral rights of about 23 acres in Canadian county. There are a lot of producing wells in the region but none on this particular lot. Is there a way an educated layperson , out of state , can estimate a fair value ? Any potential pitfalls or red-flags we should watch for ? Thank you in advance !
The first thing is to find out what activity is about to happen. If you want to share the section, township and range, the forum can help with that. Many offers to buy come because a buyer know what is pending and they usually start out with a lowball offer to see who will bite due to lack of information.
A ball park estimation is four years of oil payments and seven years of gas payments, but that only works if you have current production from conventional wells.
In general, most offers that I have received were for some discounted cash flow for a certain period of time of the perceived royalties of current wells-based upon a geological and engineering analysis and a certain price deck. Many buyers will not offer payment for the expected value of any new wells that they think are likely to be drilled. They want that profit for themselves. (Our family prefers to keep the profit for ourselves.)
if you have no real need to sell, then just sit back and wait. If you have a need, then always ask for more than what they offered.
My engineer says that “Fair Market Value of producing properties is determined by taking 75% of the discounted cash flow using a 10% discount rate.” Many engineers consider the fair market value to be the amount a willing buyer will pay a willing seller, with the properties of interest being for sale for a reasonable period of time, neither the buyer nor the seller being under a compulsion to buy or to sell, both being competent and having reasonable knowledge of the facts."
Unfortunately, mineral owners are rarely as knowledgeable about the facts of the area since they do not have their own personal geologists, engineers and landmen.
Similarly, my attorney says that “a fair price is a what a willing and informed buyer under no compulsion to buy and a willing and informed seller under no compulsion to sell agree to”. Unfortunately, the seller is rarely as informed as the buyer.
My analogy is that if someone popped up out of the blue and wanted to buy my car, I would be very hesitant to do so without learning a whole lot more about why and if the offer was legitimate. I would have attorney look at any contract.
I would never turn over a lease or a contract for sale without getting paid with a cashier’s check the same day. And for royalties, I would check that there are no funds in suspense or funds at the state treasurer’s office. Buyers are often after those as well.
Thank you for this information ! There is much to learn and absorb. A clarification, the offer is for a 1/7th interest in 160 acres . (there were 7 children of the original owners and their descendants are the current owners of the mineral rights) The property is the SW quarter of section 13 , T14N R8W thanks again for the assistance !
How about asking the other family mineral holders if they want to buy you out first?
You are probably getting an offer because there are three horizontal permits filed in the sections immediately to your east. If it were me, I would not be too quick to sell.
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