Let’s say they go drill 3 wells in the W/2 of Sec 3 and 10. Same as they have permitted in the E/2.
Looking for analogies, lets say those wells are something like the nearby API #s 3001543499 and 3001543495. (Yes these are longer laterals, so we will bump those others up a bit to predict what these will make)
So when those 3 wells come online, they may make something like 80,000 barrels of oil and 400,000 mcf the first month (combined). You should own 20.5/640 * 1/8 = 0.4% of the revenue from them.
Let’s say after taxes and whatever you net $45 per barrel and $1.5/mcf…flat prices forever.
So month 1: (80,000 x $45 net + 400,000 x $1.5 net) * .004 = $17k to you. That seems pretty awesome, at that pace its an 18 month payout to $307k. Unfortunately they then go on a REAL steep decline, eventually flatten out, etc. I would think in about 2 years you would make 10 times what they made in the first month. So we are up to $170k of revenue. Over the next 20+ they would probably make about 150% of that same amount. I did the detailed math and I got $450k worth of revenue over 20 years for those 3 wells. They would still be making $500/mo or something.
It’s more than $307k. If you just took 307k and invested it today in S&P at, what 9%, you would do better than that. And you will be paying income taxes as ordinary income on the royalty money, where you could cap gain or 1031 the sale.
In general, a pretty good well, happening in the next 2-3 years…on a 640 acre tract…is worth about $5k/nra at 10% discount rate. If you don’t know whether or not a well will get drilled, you probably want to risk future cash flows at a rate a lot higher than 10%. So, 3 wells that haven’t even been permitted yet are not IMO worth $15k/nra.
Now obviously the value of the acreage is in them drilling more than 3 wells. If for instance they drill 9-12 wells on your acreage than you are starting to see golden eggs. But will that happen? (I think it might) Will that happen soon? (No clue) What happens when you start discounting back cash flows from 10 years in the future at 9%? Or higher? Somebody paying $15k/nra for your acreage is banking on more wells. Some places they will get more wells, other places not. There are only X rigs running on Y acres in the Delaware, not everyplace can get more wells in a finite time period, but the buyer just needs to be right on average. Some hits, some misses. If nobody drills a well here for 5 years or so, somebody is gonna feel pretty sad about paying you $300k.
It just becomes a bird-in-hand vs bird-in-bush argument. If you are an individual with a single bush, sometimes it makes sense to de-risk things and cash out, IF the price makes sense.
This is probably more than you wanted to hear. Not sure if any of this makes sense or not, 50% of it makes sense to me and I wrote it. 