Reservoir engineer reports -- affordable, worthwhile?


#1

Hi, folks, I’m a newbie. I want to sell my share of mineral rights in Grady County, OK. My big task to get a realistic appraisal of the value of what I have. Recently it was suggested to me to get a report or study done by a reservoir engineer. Never heard of these people but the title alone tells me it’d cost thousands. So, does anyone know about getting their services, how much they may cost for Oklahoma, and what there might be as alternatives?

Thanks, Jim


#2

Laugh. I would guess to have somebody with a prof engineer’s license do an evaluation is gonna cost about $200/hr. How many hours that will take will depend on what you own. If you have millions of dollars worth of mineral rights, then yeah, I think I might spend a few grand to have somebody tell me what it is worth. If you have less than 100 acres I think I would not bother. I’m saying all that with no idea whatsoever what the going rate for minerals or enginerding is in Grady OK.

What are you going to get for that? This is my guess.

In simplest terms, the value of your minerals are going to be broken up into 4 categories.

(1) Wells that are producing (2) Wells that are likely going to be producing in the next 18 months (DUCs or permits) (3) Other wells that would be considered “proved” reserves (4) Other wells that would be considered possible or probable reserves.

The first one is easy, that is the part of the iceberg that is above water. Just forecast based off existing production. For the other 3, your RE will have some “type-curve” (or average well forecast) based off of offset wells, and they will schedule the future wells based on whatever development timing they think may occur. Then insert some strip price curve for NYMEX/HHub with regional differentials. That gives you future cashflows. Then discount back all of the those cashflows depending on the “risk” that the different project will occur. Say 8% discount rate for producing, 12-15% for category 2, 15-20% for category 3, and 25-30% for category 4. Get a discounted net present value. Tell you that is what your minerals are worth.

Or something like that. I do think you’ll be lucky to get somebody to pay you 60% of that number if most of the value is in category 3 and 4. But its a lot better than selling for just what is above the waterline.

In the end, it may be easier to just shop your rights to a lot of different buyers to get a more realistic value of what they should sell for. Good luck.