Offers for 2-9N-6W Grady County


#1

Hi. New to here but looking for information. I received a royalty mineral purchase offer for my 1.7 something Acres for $19,500. I currently have it leased with 3/16 royalty but haven’t ever received a check on this property. The individual needs the documents back signed by Monday which just doesn’t make me comfortable since he needs it so quickly. I inherited a bunch of little dabs like this from my mother. My mother took care of all things oil related for her and her sisters, so no one in the family has any idea what we’re doing. We’ve had lots of calls lately so I’m sure something is going on in the area.


#2

I would be careful. Sounds like a rush. I would check to see what fund are in suspense with the state. Here is the link to OK unclaimed property Oklahoma State Treasurer Ken Miller In a brief search, I saw nine unclaimed items with the last name of Eberhardt. You can also check MOEA, here is the link: MOEA Search This is the Escrow account with the Oklahoma Corporate Commission. Without any further details, it is hard to say what is the proper value for your acres. To look into royalties being suspended, I would need to know the call out, section, township and range of your minerals. Such as NE/4 of Section 3 8N 10E. Well I just saw the subject contains the callout. I will check production in that area and post again.


#3

You might consider slowing down on that offer. Roan Resources just filed for five additional wells in that section. That is why he is in such a hurry. Your gut is probably right! If you want, I can walk you through where to find everything so that you will feel more informed before you make a decision. Your family would benefit by learning how to take care of your minerals for your generation and the next. Pretty overwhelming in the beginning, but empowering once you get the hang of it. Just FYI, that offer is low to what is being offered in the next section over, so they are lowballing you.


#4

Roan has 5 Muli Sectional 2 & 35 applications with the commission. So, Martha is correct about the reason for the offer and you will probably be receiving more. I recently received an offer near you for $25,000 per net mineral acre. Regarding, production or funds in suspense, there are two wells showing production from the Oklahoma Tax Commission. Osborne #1-2 which is spaced at 640 acres and should include your minerals, it produced from 1998 to 2004 mostly Gas. Linn Operating, LLC was the last operator. Payors include TriPower Resources, Inc., Conoco, Inc., DCP Midstream LP, and Conoco Phillips Company. Roan Resources has drilled a well Leon 1H-2-35. And you or the estate should be receiving royalties, May not be a lot as the well is only producing gas and not much. I see production from July 2017 through Feb. 2018. The payors include Enlink Oklahoma Gas Processing LP and Louis Dreyfus Gas Marketing. I hope this information helps.


#5

I would appreciate anything you can tell me about learning the mineral game. We have many in several different states. Years ago these amounted to nothing. It’s amazing what these have become. Thank you very much!


#6

It doesn’t say what quarter, just the whole section. I looked at these sights you have given me. Darn it! No money for me or anyone in our family. Ha ha.


#7

You may want to call Roan Resources LLC. They have a completed well (a very nice one) that has been in production for a little over a year. (From the Oklahoma Tax Commission PUN Search):

PUN #: 051-219090-0-0000 Legal Description: -AL-35-10N-06W-AL-02-09N-06W
Lease Name: LEON API: 051-24101
Well Name/Number: 1H-2-35 County Name: Grady
Well Classification: Oil County Percent: 100.0000%
Tract #: Total Lease Acreage: 1280
Shut-in Date: Active Date: 07/29/2017

http://imaging.occeweb.com/OG/Well%20Records/1DD7DC75.pdf (Completion Report)


#8

That Leon is definitely a “nice one.”

1144 barrels of oil per day and 8,437 thousand cubic feet of gas per day.

http://imaging.occeweb.com/OG/Well%20Records/1DD7DC75.pdf


#9

Yes, I did see this Leon well. Now I just need to learn what all these papers say. I see the barrels and gas on the test date. I would have thought we would have received payment on this by now, but maybe we don’t get any of this one. I’m going to have to dig out my lease and read.

Everyone here has been so helpful. I really do appreciate all the responses.


#10

Can any one help me with 17 6n 8w whats goning there in grady


#11

Unit requested three more horizontal wells in mid 2017. They have been spud and should be done in a few months. Use the following link at the OCC to look up their status. Type in 1706N08W in the location box. http://imaging.occeweb.com/imaging/OGWellRecords.aspx Looks like some of them may be going into Sec 20. They may drill them all first and then frac them at the same time. You will probably get a different Division Order on each one since each has a different length.


#12

You might want to hire a landman to just check your inventory. Your gut is right. Too rushed. They go after small amounts when permits get granted. So be cautious and be aware of who is on here as a buyer or as an educator. I have been in land for over 25 years and see this behavior often. If anything, make sure you are aware of what the production is, what your royalty % might be from past leases, and or your nma value. The production checks usually stay in the rears 3 mos to sometimes 6 depending on the numbers.

Research always.


#13

Hey Sheryleb,

Here’s my two cents on your situation:

Using the reported IP on the Leon well (2 mile horizontal lateral - 1280 ac unit) and assuming a conservative initial decline % - horizontal wells typically begin declining at rates of ~60-90%+ immediately after coming online - the revenues from that 1st well over a 20 year period from your 1.7 net mineral acre interest at a 3/16th royalty will be about $9,100 after production taxes and income taxes (assumed income tax bracket of 30%). This assumes a realized oil and gas price (after deducts for transportation/fees/etc) $65/bbl and $2.50/Mcf, and is not discounted back to present value. There are hundreds of horizontal wells that have already been plugged and abandoned across the country after less than 10 years of production so don’t think this is overly cautious. If you multiply that $9,100 by 5 for the newly filed increased density wells (this is providing a best case scenario) as the first well in that section will draw down the reservoir pressure as hydrocarbons and water are removed at a rapid rate from the reservoir via the 1st Leon horizontal which often will lead to future horizontal wells being about 25% worse - on average - than the original horizontal well. This relationship can change if you had an older original horizontal well (~pre-2016) in your section that was frac’d with less sand and fluid than current frac designs call for. Given that the Leon was completed with a comparable, if not larger, completion design than Roan is currently implementing going forward the new wells most likely will be 25% worse than the original. All that aside, let’s just assume those 5 new wells produce just like the Leon and after another 20 years (or ~22 years from now after those 5 new wells are all hopefully drilled and producing in at lease 18 months from now in which case you should start receiving royalties ~6 months after/2 years from now) your 1.7 net mineral acres would have provided you with $54,600 in total royalties. Seems like you are getting robbed with your current offer of $19,500 after hearing that number right?? Before jumping to that conclusion, please read and consider the below carefully.

Lets say that you took that $19,500 and invested it all in a low cost index fund that averages a 7% annual return. S&P 500 has averaged a 7% annual return over the last ~90 years (adjusted down for inflation). After 22 years that initial $19,500 investment is now worth $73,434 - this is after long term capital gains taxes of 15% are taken out, at least it’s not the higher standard income tax rate that royalties are hit with.

Considering that these horizontal wells are drilled almost 2 miles directly down into the earth, turned to a 90 degree angle to run parallel with the surface, then drilled out laterally for another 2 miles, and then finally completed with tons of sand and thousands of gallons of fluid at pressures reaching above 10,000 psi (atmospheric pressure at the surface is 14.7 psi, so that is a lot of pressure lol) there is a ton of risk that something goes amiss with one of these additional wells at some point. There is also a ton of risk that the future wells are just duds, the Mississippian aged rock in Oklahoma is naturally a heavily fractured interval - this means sometimes 1 well can drain the reserves from a larger portion of the section and can also lead to large variability in well performance over distances that are less than a mile apart.

Not a betting man, but if it was my money I’d take my chances on the S&P 500 vs. the horizontal oil and gas wells. Not only is your risk much much less, but your realistic post tax return is almost twice as high if you invest the full $19,500 vs. holding your minerals and betting on the production. In fact, if you invested just $14,500 of that money in the same way you’d end up with $54,604 after 22 years (after long term capital gains taxes) and you’d have $5,000 to have fun with or use for emergencies today.

If you think this group is reputable I’d be inclined to take that money and run, assuming your offer is from a group like Turtle Creek, BCF, Longpoint, Timberwolf, Lefco, Palmetto, or Peak who appear to be the most active end buyers recently in this general area. End buyers being the groups that are buying a large basket of minerals across many different operators and sections to diversify their risk and then holding onto that basket for the next 20 years These baskets of minerals are viewed as investments to people that generally either want to diversify their portfolios with a tiny % of mineral holdings, are interested in telling their buddies they have oil and gas investments, or who have recently sold real estate and want to re-invest the proceeds via a 1031 exchange (a clause that allows for deferred payment of taxes). Anyways, those end buyer groups are going to pay the most, close the fastest and they won’t back out on you or pull tricks.

There are lots of other groups running around now that are simply looking to drag you along, maybe get an agreement signed, all while looking for an end buyer group that is willing to pay more than what they have offered to the mineral owner. These types of ‘flipper’ groups can sometimes even end up offering the highest $/ac, this happening at times when the local interested end buyer has recently reduced their pricing.values in an area (can happen based on well results, operator budget changes, etc) and the flipper type group hasn’t caught wind yet. When that happens these groups will often just find a way to wiggle out of an agreement, or avoid making any firm agreements and try to drag you along until they can find somebody they know for certain will pay more than they are offering to you.

Obviously, if a flipper type group is offering you the most money and they do actually end up closing with you then that would be their problem if they aren’t able to re-sell it instantly for more but I am of the opinion that it’s better to do business directly with the more reputable end buyer type groups, even if it’s for a little less - especially if you have interests in other areas or other states that you are looking to sell down the road. Who knows, doing a deal now and establishing a relationship could end up getting you a higher offer on your other properties down the road also.

Hope that’s not overwhelming and good luck! Good problem to have i suppose haha. Oh, and one more thing, groups that put deadlines on offers are typically the more reputable end buyer type groups as they have to make sure they don’t over allocate capital. Sometimes this isn’t the case if a flipper type group thinks they have found a steal then they may try to rush you along, this would usually be if they had found somebody else willing to pay more already.

And not sure on the sections with increased densities filed but minerals have generally been selling for $9k-12k/nma on a 3/16 in this area of the Merge recently in sections where Roan is the operator. At some points last year/6 months ago groups were actually even paying more than that, but since have backed off a little on their valuations given the variability in well performance observed. An offer of $25k/nma would be realistic in areas to the south of you by about 12-15 miles.


#14

Oh yea agreed agreed, just felt like offering my thoughts on this given that I’m familiar with the area and feel that the offers are so high to sell now that it’s hard to see future royalties ever amounting to that sum of money when you really sit down and look at the post tax present value of future royalties vs. investments with a more favorable tax structure on future gains. I’m definitely taking money off the table in situations like this now. Maybe the price to sell will keep going up, or maybe it won’t. So could the price of a lot of other things, I’ve been selling off at least 1/2 of my minerals when the offers get to the point where I think it it is no longer smart for me to hold on to all of them. Been getting to that point more and more frequently lately it seems like!!

On another note, it is odd you haven’t received royalties yet with that well being online for over a year now. If your not going to be getting royalties from the formation that well targeted then it won’t really matter what ya decide to do because you wouldn’t be able to give those minerals away - well maybe give them away but you get the point


#15

Theodore, you make some thoughtful and excellent points from the financial side of consideration up to a point. You forgot the capital gains tax on the sale of the minerals upfront. So that diminishes the $19,500 to invest. (If no value assigned, then the IRS will tax the whole amount for capital gains. If a step up value is assigned with the inheritance, then it can be minimal).

I think you need to add the thought line of investing $37,000 in production royalties over the same 20 years vs just $16,575 or so from a sale. (They are also taxed for federal and state purposes-I did a ballpark reduction of 30% for the royalties and 15% capital gains for the sales). Wise mineral owners take their royalties and reinvest them, not let them stay dormant. Seems to me that $37,000 invested would get a much better long term rate of return. We also have to take into account product prices can rise or fall as we have seen recently. Either scenario could be higher or lower depending upon product prices and the stock market. (Just remember that a whole bunch of those funds also invest in the oil industry.) There is always risk in every endeavor. Learning to manage the risk is important.

Thoughts from the technology side should also be considered. Today’s technology is quite improved from just two years ago in completion techniques. Infill wells can be better or worse than the parent well, better if using newer technology. Also, there is a vast amount of research going on now into even better techniques in frac’ing, enhanced oil and gas recovery. A few years ago, shale recoveries were about 4-7% of the product in place. Now they are creeping up to 10%. Some older wells are re-frac’d, more proppants/fluids are used, etc. Costs are going down, production can go up (or down).

There are some good companies offering to buy out there. Also some really shady ones. It is just a good idea for folks thinking about selling to consider all angles, get an appraisal of their minerals for their current value and also understand their potential future value, get multiple offers if they are thinking about selling and also realize that it is not an all or nothing deal. You can sell part, keep part, sell all, keep all. Totally up to the owner.

Good to have dialogue! I tend to be an optimist since I have been on the technology side for over 40 years and have seen the improvements. You can take me with a grain of salt if you wish.


#16

I think the biggest mistake you make in your analysis is that 5 wells is “best case”. Just about all of scoop, at least according to CLR, MRO, GPOR will have Woodford as well as Sycamore(aka Mississspian) and much will have the Springer. Based on industry activity in Merge and Stack other formations may be prospective in time. Years ago when this all started around us, it was just the Woodford, now we are surrounded by production from 3 very prolific zones and CLR has said they look to drill 4 Springer wells, 5 MORE Woodford wells and at least 3 sycamore wells(we are in Springboard) on us. So taking our time, being patient and tracking and monitoring activity has really has really paid off for us. just saying;)


#17

This advice about slowing down is solid. From NW Oklahoma down to the Texas border below Marietta, displayed on a map like a crescent moon, will turn out to be one of the two or three best plays in America for years to come. All the companies named and more have drilling plans for thousands of wells in these multiple and prolific zones. Remember the legislature changed the horizontal drilling law that allows two mile laterals in all formations not just shale.

And other legislatures are reacting just the opposite. New York has banned fracking and Pennsylvania is making it increasingly tougher.

The important thing is for everyone to think about the day when all these natural resources are gone and invest wisely now and by everyone I mean producers, royalty owners and the state of Oklahoma.


#18

You guys definitely are making great points also. In the area I was running that example for the Springer horizontal target isn’t present, Sycamore well density of 3 total makes sense and 5-8 in the Woodford.

Only problem is that when operators drill 5/6 wells in a single section, depending on how they space the laterals, the chances that they come back in and pack a bunch more in between become greatly diminished. Density tests work best when all of the inventory within a single formation is drilled, completed, and brought online at the same time to avoid the parent/child relationship i touched on.

What CLR is doing in the Springboard is great, both for them as an operator and for the real value of future royalties as the total amount of hydrocarbons recovered will be greater vs. drilling some wells, coming back later and drilling some more, etc.