Price per mineral acre in woodford

Shales Cana Woodford Shale (AKA Anadarko Woodford)
21

The above comment should not be taken as a foolproof method of valuing anyone’s mineral ownership. The variables are just too many to put a finite value number on any acre in the Woodford. The above is a way to calculate it and it is fun to speculate. No one should take these value numbers as finite.

The operators will drill their wells, hold the acreage (HBP), and infill drill as they see fit. The Royalty owners will get their payments as prescribed by the State. There will be delays and excuses but the funds will be paid and it is all very transparent if you dig into it.

22

Don,

One quick question and comment:

How do you combine the Liquids and the Gas into one number? Is there a formula?

Doesn’t .1875 equal 3/16?

23

That’s a boo boo on my part, 3/16 is .1875.

Supposedly you have to get the gas BTU and the oil BTU to get the proper relationship. I’m sure there are a dozen different opinions on this but what I have used is a six to one ratio. That is 1,000,000 bbls oil = 6 BCF of gas.

If a well makes 1,000,000 cubic feet a day and 100 bbls of oil a day that would make, according to my calculations, the gas equivalent of 1,600,000 cubic feet gas per day. Because the dollar relationship of gas versus oil is so far out of whack trying to equate them BTU wise is a real chore. It is just easier to calculate the value of the gas in dollars and the value of the oil in dollars and that is what a well produces per day in dollars.

24

I totally understand where you are coming from! I am a Real Estate Appraiser and because of my love for the O&G industry would love to learn more about valuing minerals. I also need the “non” real estate hours to gain my Certified General License Status. Any help would be appreciated.

25

EDIT “Non” Residential Real estate hours!

26

Don, From what you are saying I’m assuming that it is pretty futile to try to estimate the future value of a well based on the BTUs estimated to be produced. Using today’s oil and gas prices it looks to me that your $24,000,000 well would be more like $45,000,000. The 100 bopd alone should be worth about $32,000,000 over 10 years. I’m not trying to nitpick your calculations, just looking at the best case scenario. Or maybe I’m dreaming too big!

Don Underwood said:

That’s a boo boo on my part, 3/16 is .1875.

Supposedly you have to get the gas BTU and the oil BTU to get the proper relationship. I’m sure there are a dozen different opinions on this but what I have used is a six to one ratio. That is 1,000,000 bbls oil = 6 BCF of gas.

If a well makes 1,000,000 cubic feet a day and 100 bbls of oil a day that would make, according to my calculations, the gas equivalent of 1,600,000 cubic feet gas per day. Because the dollar relationship of gas versus oil is so far out of whack trying to equate them BTU wise is a real chore. It is just easier to calculate the value of the gas in dollars and the value of the oil in dollars and that is what a well produces per day in dollars.

27

MMcfd / 1000 x well head price x royalty rate / 640 = price per day per acre

1,500,000 cfd / 1000 = 1500 units

1500 units x 4.00 = 6000.00 dollars

6000.00 x .1875 royalty = 1125.00

1125.00 / 640 acres = 1.76 dollar per acre per day

1.76 x 30 days = 52.80 per acre per month

Is my math correct?

28

Your math is correct and assuming all you are producing is dry gas your result is accurate. But if you are getting any oil or natural gas liquids your bottom line could be a lot better. Many of the Cana wells are producing high BTU gas, sometimes called “oily gas”.

Francis said:

MMcfd / 1000 x well head price x royalty rate / 640 = price per day per acre

1,500,000 cfd / 1000 = 1500 units

1500 units x 4.00 = 6000.00 dollars

6000.00 x .1875 royalty = 1125.00

1125.00 / 640 acres = 1.76 dollar per acre per day

1.76 x 30 days = 52.80 per acre per month

Is my math correct?

29

In the example I gave I was assuming that the 6 Bcfe was the combination of the oil and gas produced. Could well be low for the “core” production. But it is posted as a quick method for trying to get a handle on the worth of mineral acreage.

Prices in the future of oil and gas—Who knows, guess away, whatever the guess is it will be not quite right.

30

Since we are speculating, oil (WTI) has gone from $11 in Dec. 1998 to $87 today, that’s an 800 percent increase so in 13 years oil will be $696 a barrel and if gasoline goes up the same amount we’ll be paying $28 per gallon of gas. If you believe your figures then you must also believe $28 gasoline in 13 years and the Dow Jones Industrial (stock market) will be at 31000 prospectively based on its past. We will soon be back in the dark ages as we will someday be running out of oil and a replacement for oil cannot be found (we are speculating). Prices may go up even faster so maybe we should figure 4000% or 10,000% increase instead of just a mere 800%, then oil could be $8700 per barrel or more. So buy, buy, buy as oil in my lifetime will be a minimum of $1400 a barrel and the Dow will be at least 62000. I don’t think anyone took into account in their figure the rise in prices, just keep saying I believe, I believe.

31

Joe and Don, I agree with you both and it’s a good way to exercise our brains. At my age that’s a good thing!

32

Alternate energy resources are making a lot of headway in competing with oil and gas. It is in the best interests of the Saudis and the Russians that oil stays as high as they can maintain it over the longest number of years. That indicates that they will adjust the price (downwards) so that alternate energy resources have a hard time competing with oil whose infrastructure is in place.

Oil and gas will be the future reliable energy source for a long time rather than some alternate source championed by a stump speech politician.

Shale oil is big right now. The amount of gas reserves found in shales will keep the price of natural gas down for years to come. Don’t forget the oil sands of the western U.S. and Canada. Big time recovery is possible there. However the oil price will have to stay high to make those sands be able to make a profit for those extracting it.

33

I want to lease my rights to 100 acres in Grady County, Section 6, Township 5N, Range 6W. Does anyone have any info about fair prices per acre in that area? Or who I could approach to make these rights available for a leasing offer?

Thanks - Tom

34

Tom:

There has been a large amount of recent leasing activity in 5N-6W. Almost all of it is by Conquest Land Company, 3240 W Britton Rd, Ste 103, Oklahoma City, OK 73120.

I don’t know anything about them, but most likely they are leasing large amounts of acreage as contractors for a larger oil company.

Tom Ellis said:

I want to lease my rights to 100 acres in Grady County, Section 6, Township 5N, Range 6W. Does anyone have any info about fair prices per acre in that area? Or who I could approach to make these rights available for a leasing offer?

thanks-Tom

35

I have no idea how many acres you are considering selling. My suggestion would be to NOT SELL! If you feel you must sell I will be happy to discuss alternatives with you depending on where your minerals are located. I have seen less and more than the numbers you have posted.

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I believe Tom’s question related to LEASING rates, not selling.

Darrin Bailey said:

I have no idea how many acres you are considering selling. My suggestion would be to NOT SELL! If you feel you must sell I will be happy to discuss alternatives with you depending on where your minerals are located. I have seen less and more than the numbers you have posted.

37

My family was offered $3000 an acre several months ago. We did not sell and now have a well in production. Because of the 640 acre spacing they could drill more wells in the future. With the first well we could end up with exceeding that offer in production in 18 months. Larry

38

Don, Your fraction was off, but you corrected it below.

This is a great illustration. I’d only add that you have to think about the discount rate. We could all invest our money elsewhere, so you have to give up a return anytime you sell anything. Otherwise, no one would be willing to buy.

I’d also argue the other 66% might come over 30 years and not just 8.

On the other hand, you could get a real gusher or have more than one well drilled and a lease could pay the numbers you illustrated in a few months. It’s a risky business, so the value one will get is changing every day. With the move in natural gas prices over the past few weeks, our minerals have lost a lot of value, but that could go back up tomorrow. The nature of the beast.

Don Underwood said:

I have done a gross calculation on what one (1) mineral acre might be worth in the Woodford shale play. This is based on a well giving of 6 Bcfe of gas, meaning the combination of oil and gas produced is expressed in terms of gas only. A given well can produce considerably less or considerably more. That is the unknown and it is a big one. The price of gas per 1000 cubic feet is $4.00 which will fluctuate over the estimated 10 year life span of the well.

One acre is .0015625 of a 640 section.

Given a lease royalty of .1875 or 1/6, one acre is .00029 of the 640.

Estimated production is 6 Bcfe @ $4/ thousand is $24,000,000 over the well’s life. (this is a big guess)

One acre at .00029 X $24,000,000 = $6960 per mineral acre what the 6 Bcfe well would deliver for gross value.

The well would likely produce 33% of its total in the first two years and the remaining 66% in the last 8 years.

A daily rate of 4,000,000 cubic feet of gas per day equivalent (initial production) at $4 per thousand would = $4.64 per mineral acre per day.

The daily rate will likely drop dramatically in the first two years and then level out.

There are costs associated with the royalty interests and there are state and federal taxes. The dollars above are gross dollars.

39

I appreciate everyone’s comments. I have been reading for months. I now have a question. My family has an interest in Dewey County. Two years ago we leased our mineral interest to Rockford Energy III LLC. At the first of this month they sold our interest to a larger drilling interest. For whatever reason the buyer has not announced its purchase. We were told they intended to start drilling soon. It is in the Tonkawa Sand Section 20-17N-19W.

Has anyone heard anything? Anyone know who the big “players” in that area are? We’re getting nothing but voice mail.

40

John, I checked the OCC website http://www.occeweb.com/index.html. The latest entry was a one-year extension to drill issued to Rockford on 7-11-11. The reason given was shortage of drilling equipment. They had received a Permit to Drill on 11-12-10. The companies that come to mind are Devon, Chesapeake, and Continental Resources, but there are a number of others active in the area.