I’ve gotten some offers on my mineral interests that have a wide range, anywhere from $llK, $19K, and up to $26K per acre. My question is about these buyers, what do they expect to get in return for their investment? So when they payout say $20K per acre what do they think their return to be? 5%, 20%, %100? Do they follow some sort of formula for return or is it really a WAG? Just curious to what the expectation is, at this point I’m not selling. Jagged Peak is drilling 2 across my section in Ward county (section47, block 34) so we’ll see.
Wildcatting wells in the Permian and Delaware basins is, by nature, risky and those that employ the
WAG (wild a…ed guess) usually come to a bad financial end. There’s a MOUNTAIN of subsurface
data and mapping all over the Permian and Delaware basins…so guessing shouldn’t enter into the
decision to drill in any specific area.
$19,000 to $36,000 per NMA in Ward county is now the average for offers. Good luck.
ol’ Lawrence in Verhalen
A company leasing and drilling horizontal wells in proven reservoirs is looking at making 15% to 25% rate of return. Most of the oil wells will pay out in one to two years. Gas wells tend to take longer than that. Funny you should think they might be guessing. They do follow a system, it is not a “formula” as much as an economic model that takes into account the production rates from an area of interest. If they are offering you a certain amount of money it is because they expect to make a return.
THanks to both of you for the answers! My question on WAG was really me being facetious (or a smart A…) about the whole thing! But I’ve really been curious about the expected return for theses investors. So again thanks for the help.