Production decline - some wells at nil

My brothers and I have been debating the merits of selling our mineral rights as opposed to hanging on. As I read daily about the faster rise of solar and wind (really wind is solar) as a energy source in Texas and consider the heck we may be facing in the environmental political side of the spectrum I have come down more on the side of getting “enough” now as opposed to hanging on and maybe getting little to nothing. One brother is viewing that last option as holding out to get a lot. Supporting my approach has been well output from our six wells over the year. As of the last three royalty payments, we are seeing more money. Significantly more money, but that is because of higher prices. Output has been dropping. In two wells from about 40,000 CF to 0. Our two largest wells have seen significant decreases as well ie. 106k vs 129k, 377k vs 430k since the beginning of the year. Prices won’t continue to rise and so when they start declining, along with declining production our royalty payments will drop even more precipitously. I do realize NG is used for other things, not just power generation and who knows, maybe the tariff’s will go away and we might start seeing some CNG heading to China. But I don’t buy it. Is my mindset out of whack and missing something or am I being reasonable, conservative and prudent.

F100owner - You are thinking thoughts very similar to many people who have sold this year. Your thoughts are not at all unreasonable either. That said, there is a high likelihood that there will be more wells drilled in the future on your lands but at different depths. The question is, when? It might be in the next 10 years or 50 or more. The Permian Basin and Delaware Basin have such an enormous amount of resource that you have no way to know when you might realize additional upside value on your properties.

What I usually tell clients, friends and family members that it is really a personal decision. Essentially if you think you can do something with the capital now that will grow and that you can more easily define in terms of expected income or ultimate potential and that works better for you then I’d recommend that action. On the other hand, if you aren’t much of an investor but the royalty checks allow you to do some extra things with your family each month then that may be a better option.

I recently had a client with your concerns that sold and spent the money on a rental property in their home state so they could have an asset that appreciates in value and still gives off revenue. Something like that can also be done with no capital gains tax liability by doing a 1031 Exchange(you would discuss this with a tax or legal expert for guidance).

I do know that offers to buy are high right now but over the decades I have always been amazed at the industry’s ability to keep going higher a few years later. I hope that helps.

Travis

f100owner, It appears to me that you and your family have a property that is producing primarily natural gas? If so, what formations or depths are these wells producing from? Reeves County is smack dab in the Delaware Basin which is one of the most prolific basins with multiple formations stacked one upon the other. I believe a little research by a Landsman familiar with the basin would be a good step prior to selling any piece of your family’s property there. That should not require a major investment and may guide you and your’s down a prosperous path.

My best regards,

Never a bad idea to hedge your bets. For example, sell 1/2 of the minerals and retain 1/2 for future upside. With the cash you get from a sale, invest it and grow it further (in something else besides oil and gas assets), don’t just spend it all immediately!

Nothing but wet gas. No oil being produced at our wells southwest of Toyah about 3 miles. I know some of the wells went down 21000 and out the same. Not sure if all six are the same. Apache had permitted a seventh well, but it has not come into fruition. All three drilling sites (for Ash and Birch Units) sit on the family land. What I have never been able to determine if these wells are running at full potential or if the volume is being controlled. Not familiar with how gas wells work.