Offer to buy my mineral rights

I have the following offer to buy my mineral rights in McClain Co, sections 17-7n-4w, 19-7n-4w, 20-7n-4w

I don’t need the money, but it would sure be nice ! I’m 64. have no heirs. Income taxes are lower if I sell (fed 15% cap gain) vs royalties at 22-24% fed.

If I’m going to get a lot more $$ (at least 25%) than the offer in the next 10 years… then I’d rather keep my mineral rights.

I know 4 new horizontal wells are going in by EOG. i think more wells from others too but haven’t had time to create a list from the OCC docs. .

should I sell all, part or keep my mineral rights?

McClain Co OK Section 17-7n-4w, 7.5 Net mineral acres (NMAs) 3/16 royalty interest $12,500 per NMA total $93,750

Section 19-7n-4w, 2.5 nma 1/8 royalty 9,669.50 per NMA total 24,173.75

Section 20-7n-4w 21.25 nma 1/8 royalty $8,333 per nma $177,076.25

thank you !

17-7n-4w- EOG has three more wells approved. Estimated ultimate recoverable from the OCC document has 7.232 BCF gas and 3.57 MMBO left. Look it up under case 201800178. It already has three drilled with section 20.

19-7n-4w- Newfield had case 201900468 has four more Mississippian wells 7.832 MMBO and 31.631 BCF left. You already have one of the wells. McCorn 1-18X Newfield has case 201900466 for seven additional Woodford wells with 14.174 MMBO and 57.446 BCF left. Note: Encana bought Newfield, so the timing on the wells might change, but the reserves are still there. I would not sell this one.

20-7n-4w-EOG has already drilled three Mississippian wells and requests three more. Estimates of 5.569 BCF and 2.964 MMBO left. (20 & 17 go together with multiunit wells.) Three of the Sturgell wells just finished. They want your royalties before you know about them as the Division Orders won’t go out for a few months. #3 had trouble, so they replaced it with 3R, I think. You should already be getting paid on Sturgell #1H, 4H and 3HR are pending Division Orders.

You have quite a few wells pending. If it were me, I would not sell at all with that many wells drilling and pending. The folks that are offering to buy know about these wells and know they will make a tidy profit off of you. If you want to split your risk, you could sell some acres and keep some.

thank you very much Mary !

since the div orders are pending for some of the wells, can I negotiate the royalty interest to be higher than what i have now with existing wells?

where can I get more info on BCF and MMBO… i’m not familiar to those terms and what they mean financially to me as a mineral owner

thank you very much

i see that bcf is billions of cubic feet and mmbo means millions of barrels of oil… but don’t know what that means financially to mineral rights owner like me.

You are awesome… thanks for taking your time to help me and others

sherie

No, you cannot change the royalty amounts if you already have leases. They are set in stone with the lease contract. You can ask them to raise the amount they are offering.

BCF stands for Billion Cubic Feet. MMBO stands for MMBO.

You Division Orders state that you get a percentage of every cubic foot of gas and energy barrel of oil that comes out of the ground.

For example, your rights in 19 are 2.5 acres. The division order equation is as follows.

net acres/gross spacing acres x royalty x % perforations in your section. 2.5/640 x .125 X % perf. So look at your check stub for the McCorn well and it is probably close to 0.00024414. I assumed the McCorn well was 50/50 with 18, but it is probably slightly different. For every barrel and mcd that comes out of the well, you get the decimal amount of the cash received by Newfield/Encana. Minus any taxes and post production costs if your lease has them.

A general way you can look at it is to look at the revenue you have already gotten from the existing horizontal wells in your sections and then multiply by how many new wells they have coming. The prices may be higher or lower by the time they are drilled, so that will affect the amounts. Also, the child wells (these later ones) may or may not have the same flow rates as the parent well (original ones). Do it by reservoir because the Woodford and Mississippian have different production rates.

Hi Mary.

thank you again for your wonderful helpful info.

Can I hire /pay you to help me analyze my situation? I’m overwhelmed and spent over 160 hours on this lately.

the .00024414 for mccorn is pretty close to the pay stub.

I haven’t received over $4,000 per year for all royalties for a long time. the highest I got was $8k a year about 10 years ago.

I’m not aware I’m getting royalties from a horizontal well so I will research that. the royalties dribble in…

do you have an idea of a good sales price? my offer is $295K total, with the buyer paying for the curative to make my title marketable.

any idea how long it will take for me to receive royalties greater than $295K?.

I’m sure y ou already know, the income taxes on royalties is ordinary income… for me 24%. cap gains is 15% if I sell.

thank you soooo much again !

Sherie

Hi. I see your name is Martha and not Mary.

so sorry for my error. please contact me as I’d like to hire you to help me estimate my royalty payments from new wells. thank you

Sherie

You are about to get royalties on several wells. They have been drilled and the company is working on the division orders now. The buyer is trying to get those future royalties from you.

If you sell, you will have to pay capital gains tax on the one time amount (which in my opinion is probably below the value of the future wells). If you don’t sell, then you may get royalties on the wells that are planned and even though you pay a higher tax rate, you will probably make more money in the long run. That is what those buyers are counting on as well.