Gary, I totally enjoyed your above epistle (sp?). I must say I have thoroughly enjoyed this thread. To Dillon: sell mineral @ 2-4 times the lease bonus?? That sounds awfully cheap. What’s the general rule of thumb on this, fellow professionals?
I see very little way to realistically value minerals based on lease bonus as I see many in the Niobrara who received a pittance on their leases yet see some in Oklahoma that I could never see pay off in my life time. A buyer should make money in their lifetime but I see many leases for 3+3 or 5+5 at $15 per acre. Very difficult to foresee a benefit on a 5+5 at $15 per, but one could not put a multiple on a $15 lease bonus to adequately justify selling. There are however some areas of very shallow marginally producing wells that are short lived though. Just as everything needs to be taken into consideration as to hold or sell anything one can own in life, there is also much to consider as to come to some sort of absolute value to place on any item, there is no one method to express that. One could say the value of an object is only worth what someone is willing to pay at that moment in time, it can also be worth more or less with time. Even the best minds in the world can only guess as to what that would be.
Stephenie,
Any seller seeking fairness to himself, his family, his company, or his future, must first determine the value of the mineral Reserves (see USGS or SEC definition) and the value of mineral Resources (specific definition again) then wether the Resources are Probable, Possible, or Inferred Resources. All categories have different relative values to knowledgeable buyers. Knowledgeable buyers have already done their homework in making an offer. Uninformed buyers will soon be parted with their money by Knowledgeable Sellers. If one only uses "rules of thumb" or averages to make or accept offers they leave the outcome to pure luck. If the minerals turn out to be above average, the seller looses, if they are below average, the buyer looses. Every seller hold have a number that is based on science or personal knowledge and adjusted by economic needs, and emotion.
Look at Mineral Joe's response to your question. He uses the word "value" or and economic reference to value at least 10 times in one short paragraph. He also adds some educated guidelines that satisfy his plan but may be disagreeable to others but he does have his own plan. He is obviously one who knows how to determine an internal value to him both as a buyer and and seller. He may not always be right but then none of us are. However, things will be always turn out for the best if we start with the concept of VALUE in making decisions. If fair value fits within arbitrary guidelines it is purely coincidental.
Gary L Hutchinson
Minerals Management
Stephanie Wilbanks, CPL said:
Gary, I totally enjoyed your above epistle (sp?). I must say I have thoroughly enjoyed this thread. To Dillon: sell mineral @ 2-4 times the lease bonus?? That sounds awfully cheap. What's the general rule of thumb on this, fellow professionals?
There will always be that unknown that can have a varying and sometimes drastic affect more so than reserves as the steep rise and fall of Natural gas prices in such a short period have proven. One can only make an educated guess and that's all it really is in the end, a guess. No one can say they are right and others are wrong until it is known. Like who would have guessed the Giants to win. Nat Gas reserves mean nothing when nat gas goes from over $15 to $2.4, no method of valuation can be accurate in this type scenario.