Your minerals are in a good area for future production. Completion Report on one of the wells(API 389-33845) nearby showed 217 BOPD(Barrel oil per day)/489,000 MCF(Thousand cubic feet) gas per day. Another well(API 389-34437) nearby-Completion Report showed 384 BOPD/580,000 MCF gas per day.
Leases are negotiable. There is no such thing as a "standard" lease. A producer's lease is written to benefit producers. You need an expert in oil and gas law to assist you with a lease, imo.
If the offer to purchase your minerals was for [$7800 x 644 acres] five million dollars, then you likely own all the minerals.
Our family owns minerals in Sec. 183 Block 1 just north of you. We use Wade Caldwell out of San Antonio to represent us with the oil and gas companies. He does a great job. We would never sell our minerals. Good luck.
As has been mentioned, that is a good area. I'm attaching a leasehold map to this post. It looks like a number of leases have been taken in that section already, including one by Chalmer Huston to COG Operating in October of 2014. COG Operating = Concho Resources, and they are one of the best operators in the Permian. Is that lease by any chance covering your property? The lease calls for a 20% royalty, 3 year primary term, and a 2 year optional extension that would be exercised upon payment of $300/acre. If drilling is not underway by 2017, there isn't a doubt in my mind that Concho will exercise the 2 year extension option for $300/ac as that is a bargain for them compared to what acreage sometimes leases for in that area. ($3k/acre). If the above described lease does not represent your minerals, and yours are in fact unleased, I would strongly advise against selling and instead have someone help you negotiate a favorable lease. I note there are sponsors of this site which offer those types of services.
If y'all are set on selling the minerals, my advice would be to only sell a portion. The 20% royalty will be a reason that purchasers try to knock the price down since 25% is more of the norm now. However, even with a 20% royalty, you would come out ahead once the section is fully developed by not selling. If there were drilling permits on the property, you could expect much higher purchase offers.
As to your question below about the length of leases, once a well is drilled and completed, which can take anywhere from 30-60 days, depending on the language of the lease, the lease will stay active to at least certain lands and depths for as long as the well is producing.
Yes. The lease was likely written to favor the producer and a larger per acre bonus could probably have been negotiated. The lease likely allows for production costs to be deducted from the 20% royalty and has other weaknesses from the grantor's perspective. If I learned that I had inherited land in Asia which is suitable for dragon fruit sharecropping, I wonder just how favorable a deal I could negotiate from abroad knowing nothing about cultivation, terroir, etc. ? Be glad the lease does not have a </=12.5% royalty or do wicked things.
Wolfcamp Shale, Does the magic map viewer you use show the mineral ownership in un-leased sections?
Assuming the OP's grandfather does decide to sell, what would you expect would be a fair per acre given the production potential of the land and the value of future dollars?
As for the true value of minerals in this tract, or anywhere in Reeves County, it all comes down to what the top buyer is willing to pay. However, despite what a mineral buyer may claim, they are impossible to effectively value. So much of Reeves County is still being "proved up", drilling and completion methods are improving, and even in the sections with strong wells, there are different "benches" that can still be targeted for future production. Wolfcamp A, Wolfcamp B, Wolfcamp C, etc...
Everyone has different priorities and desires for the method(s) by which to monetize their minerals, but if someone is set on selling, my advice is to 1) only sell a portion, and retain some for the future 2) Unless you are in the land business and know what it is that you own, I advise choosing a mineral advisor/broker/comparable service that is extremely familiar with the specific area where the minerals reside, who the top purchasers are, and how to effectively communicate with those top buyers. If you look at the Reeves County records, more often than not minerals are "flipped" shortly after they are purchased. Eliminating the middle man is at least one way to get something comparable to "FMV", since that is typically who will pay the most for it, but that same buyer may be willing to pay double in 6 months, so it is always in flux.
The one thing that is a certainty, is that once they're sold, they're gone.
Thank you for your reply and answers, Wolfcamp Shale. I appreciate your posts. Retaining some of the minerals makes sense if one does not fear demand destruction [worst case buggy whips; or even only permanently lower oil prices] and if one is comfortable with longer term investment horizons. But what if an older person--or any person--chooses to live it up...spend and give generously, and 'die broke' ? I can see how a large amount in hand could be very attractive to some mineral owners even if it is deeply discounted as to the promise of eventual returns. Oil companies, I suppose, buy and sell assets frequently. I wonder what percentage of leases are never drilled? What is the greatest per acre price you know an individual has received selling minerals?
Sometimes it's worth taking advantage of a "hot area" to capitalize on the premiums being paid. Reeves county is the current mineral buyers darling but like all counties the production changes across small geographic areas. It takes EUR's > 400 mboe to provide a decent return on investment at today's strip prices. Most shale drillers are dependent on OPM to continue to fund their drilling efforts as practically none can fund development program from free cash flow. Banks are about to give the axe to credit facilities which means the most likely source of continued funding may dry up. The market has tolerated secondary equity raises to this point but unless prices go up drastically- this may come to end as well. This is not meant to be advice just something to consider. Know the players and the area.
How where you able to find the completion report PDF you gave the link to above? Since our last conversation 2 wells have been permitted and at least started one I know was started several months ago. I assume enough time has passed that there would be a completion report for the first one. Any info would be appreciated.
