We have an estate member that is possibly interested in selling all or part of their mineral acres for the following locations: Blk 13, sec 179 (approximately 14 nma) and Blk 51 T8S, sec 27 (approximately 4 nma). What is the going rate per nma for these locations?
Depending on how well the existing well does, the operator could drill additional wells. With the "winerack" design for multiple stacked horizontal wells, there can be room for quite a few. On one of properties, the operator plans to drill 16-20 wells. 8 parallel wells would be in the upper Wolfcamp, 7 wells would be interspaced below, and possibly 8 more below that in the middle Wolfcamp, providing income for many years to come from the section. 4 wells have already been drilled, and the average ultimate production is projected at just over 1 million BOE (half gas, half oil). Depending on how soon the subsequent wells are drilled, I calculate that each nma will provide about $40-50k (net present value using a 10% discount rate) at current oil/gas prices after severance tax. We were offered $30k per nma to sell, but refused. In addition, income taxes can be more favorable on the long-term revenue from production than on the up-front money received on a sale of minerals.
It would be interesting to see your calc re: the tax side of this. Without doing so myself, my first thought would be that selling would result in long term capital gains tax, while royalty income would be subject to ordinary income rates. Not challenging you on this at all....just my first reaction.
Depending on where you are situated in the tax brackets, and where selling minerals would then put you, it could be advantageous to reap the royalty stream. If you have a lot of minerals, and are within the 15% tax bracket currently, then that sale could push you into the 25% or higher brackets. Even though long-term gains are taxed at "favorable rates", meaning less than your "ordinary income" taxes, you could pay more up front in taxes than if you took royalties because of the change in tax brackets. However, this all depends on multiple factors. There are scenarios where you would actually save tax money by taking the up-front lump sum. For instance, if a mineral sale doesn't affect your bracket, then you would be taxed lower on that up-front money ("favorable rate") as compared to steady royalty income that would be taxed as "ordinary income".
If you want to know more, message me. There's a lot of ways this could play out, and every factor can change the outcome.
We have a couple leasing/buying companies that have been making us offers on our Se/4 of Section 136, Block 13 in Reeves County, Tx.
So far the highest lease bid is $3000.00 per net mineral acre as a one-time signing bonus for a 3 year paid up rental and a 1/4 royalty on the marketable oil and gas for the life of the well.
We're pretty sure that's a low ball offer.
Any information would be appreciated.
Sharon That sounds like a lease offer. I do not know what the current leasing rate is for that area. The estate leased Blk 13 Sec 179 to Primmex a couple years and now have a permitted well. I think the lease was $2500/acre, 1/4 royalty, for 3 years with 2 year option.
The estate member recently had an offer of $8,500/acre to buy, which I think is low. I don’t know what they have done as far as selling goes.