Hi All,
I inherited 80 acres in Weld Co, Colorado and it is leased at 1/8 royalties. This is all totally new to me... I can't find any mention of any clauses or other hidden costs in the Lease. What kinds of terms should I be looking for? I'd like to know a little more about how all of this works, without getting over whelmed. There have been several companies who have contacted me about buying my Mineral Rights. Currently, there are no wells in production on the property, so no royalty checks. But the general area is very active with speculators. Are there some guidelines you could offer to help me understand what my potential royalties (ie how does 1/8 equate to actual dollars?) might be? I know there is no way to predict output, but I'm trying to figure out whether it makes more sense to sell my mineral rights or wait for royalties. From what I've read, 1/8 isn't that great of a deal...
Township 09 North, Range 58 West of the 6th P.M. Section 25, E2
I hope someone on this group can help me. Thanks, GT
Gina:
First, the decision on what to do with your mineral holdings is strickly up to you but I have never been one that would consider the sell of my own mineral holdings. I am not familiar with the Weld County area but have read that the area is being developed. The 1/8% is low in today's leasing activity but how long is the lease you signed? If the area is not drilled during the term of the existing lease, you will have the opportunity in the future to negotiate a new lease with a higher % royalty, etc. You must stay abreast of the current wells being drilled in your area and the production figures for these wells. If a great well is drilled near your mineral area, this will spark the interest for additional drilling and if your lease remains undrilled your negotiating power will vastly improve. If companies are contacting in regards to selling your mineral holdings, they must see a potential for the area. You cannot predict the output of a new well but you can measure the performance of wells in the proximity of your minerals. Your final payout on any well drilled will depend on several factors including the number of net mineral acres you have in the unit, the size of the spacing unit, the amount obtained for selling the crude and of course the % royalty you hold. Hidden costs in the lease could be your obligation to pay for the transportation costs of oil, etc. Again, this is a decision on whether to hold or sell your minerals but if a well is drilled, you could realize an income for several years to come. Also, the current trend in these shale plays are to drill additional wells in spacing units which means additional income on your mineral area. It all concludes on the amount of production from well in your area.
Gina, I took a wild chance and looked on ESER.org, which I usually do not do because the information there could be out of date, but I did it and there is a well permit by EOG. Many of these offers to buy come because the buyer is following permits, they want to buy before you find out that there is drilling or sometimes if a well is already drilled, they want to buy before a second well is drilled. I then got so curious I checked on the Co gis map for more up to date information, although I don't find that map user friendly.
The well name is Fiscus Mesa 23-25H to be drilled by EOG. I read something about surface casing being set, that sounds like something is going to happen. The whole area looks like they have plans for it. You know your situation better than anyone else, but I think I would sit on it for awhile at least to see if it gets drilled. Nobody is going to buy it from you for more money than they think it would make, probably more like 1/3rd of what they think it would make them or less. If you are really serious about selling, I would auction it online and or offer it to the operator EOG, it might be worth more to them than to some speculator. I wouldn't worry about an unsolicited offer drying up, usually when I ignore them it just prompts them to send better offers. Good luck whatever you do.
I fully agree with the other comments posted. If you do not have a mineral lease as yet, make sure that you get an attorney prior to signing anything. As for royalties, check out this site. It is a good calculator. http://www.shalebiz.com/pages.php?page=6
Thanks for your input. From r w's post (more to come there!) it appears that a well being drilled is close to happening. I read and reread the Lease and there is a sentence, "In the event lessee compresses, treats, purifies or dehydrates such gas or transports gas off the premises, lessee in computing royalty hereunder may deduct from such price a reasonable charge for each of the functions performed, including associated fuel." So, it looks like they got a sweet heart deal with this Lease. Is it such a "bad" Lease for me that I should just go ahead and sell it? At what point does it make more sense to hold or fold?
Without driving out to Colorado, how am I supposed to figure out all the other things you listed? It's like a sweater and I keep pulling the yarn out...
charles s mallory said:
Gina:
First, the decision on what to do with your mineral holdings is strickly up to you but I have never been one that would consider the sell of my own mineral holdings. I am not familiar with the Weld County area but have read that the area is being developed. The 1/8% is low in today's leasing activity but how long is the lease you signed? If the area is not drilled during the term of the existing lease, you will have the opportunity in the future to negotiate a new lease with a higher % royalty, etc. You must stay abreast of the current wells being drilled in your area and the production figures for these wells. If a great well is drilled near your mineral area, this will spark the interest for additional drilling and if your lease remains undrilled your negotiating power will vastly improve. If companies are contacting in regards to selling your mineral holdings, they must see a potential for the area. You cannot predict the output of a new well but you can measure the performance of wells in the proximity of your minerals. Your final payout on any well drilled will depend on several factors including the number of net mineral acres you have in the unit, the size of the spacing unit, the amount obtained for selling the crude and of course the % royalty you hold. Hidden costs in the lease could be your obligation to pay for the transportation costs of oil, etc. Again, this is a decision on whether to hold or sell your minerals but if a well is drilled, you could realize an income for several years to come. Also, the current trend in these shale plays are to drill additional wells in spacing units which means additional income on your mineral area. It all concludes on the amount of production from well in your area.
R W, thank you so much for doing that research!!!! WOW!!! You are an angel!!
So, you say that someone would buy it for about 1/3 of what it's worth. Are you saying the entire worth, or my 1/8 position of it? I was offered (not an official document, but an email-- from a reputable company) $60,000. From that, are you saying that if I use that as a gauge for the worth, that my royalties could be around $180,000. Even at the 1/8 position and the "net" amount accounted for? Does this $60,000 have weight or do you think it's just an offer to get me talking. Could that be a low-ball or a inflated number?
r w kennedy said:
Gina, I took a wild chance and looked on ESER.org, which I usually do not do because the information there could be out of date, but I did it and there is a well permit by EOG. Many of these offers to buy come because the buyer is following permits, they want to buy before you find out that there is drilling or sometimes if a well is already drilled, they want to buy before a second well is drilled. I then got so curious I checked on the Co gis map for more up to date information, although I don't find that map user friendly.
The well name is Fiscus Mesa 23-25H to be drilled by EOG. I read something about surface casing being set, that sounds like something is going to happen. The whole area looks like they have plans for it. You know your situation better than anyone else, but I think I would sit on it for awhile at least to see if it gets drilled. Nobody is going to buy it from you for more money than they think it would make, probably more like 1/3rd of what they think it would make them or less. If you are really serious about selling, I would auction it online and or offer it to the operator EOG, it might be worth more to them than to some speculator. I wouldn't worry about an unsolicited offer drying up, usually when I ignore them it just prompts them to send better offers. Good luck whatever you do.
There was a tremendous amount of interest and activity after the Jake Niobrara well but after everything was leased and they started drilling the horizontals, production wasn't anything like they hoped and many of the majors started leaving. I have minerals under the first 1280 spaced 2 section well Continental drilled in 9N that was supposed to kick off all horizontal Niobrara wells being 1280 spaced like in ND. The bad part is that 1st 2 section well was a dry hole, that and most other horizontal wells coming in all over the county were uneconomical. The spark that Jake caused in Weld and many surrounding counties has faded tremendously.
Gina, the well isn't drilled yet. It was right on the verge of being drilled when I guess other more important matters came up. The fact that they got all the way to setting surface casing tells me they were pretty serious.
By 1/3rd, I mean 1/3rd of what your 1/8th/12.5% royalty would bring you over the life of the well, and there is always a chance that another well could join the first and that would increase the buyers profit considerably. $750 isn't alot of money when you are taliking about even fair producing mineral acres.
$750 per acre (after capital gains) at a rough guess would be about equal to 80 to 90 barrels production of oil per acre and a good well could do that in 1 year, a fair well could do it in 2 years, a poor well could do it in 3 years. Any production in the next 10 years or so would be profit, which could easily tripple or more their money.
If your lease should happen to expire with no drilling, you could possibly lease again for some hundreds of dollars per acre and a better royalty next time.
I would be inclined to wait awhile to see what happens but there is nothing wrong with selling if that is what you want to do. I would use, I think the name is Mineral Web. You could tell the company that made the offer that the minerals are on auction, it's business after all, you want to get the most they will bring.
Hi R W, Thanks again for your response.
When you say another well could join the first and that would increase the buyers profit considerably. You are referring to if I sold it, and there was a second successful well drilled, by the buyer. I assume that would also apply to if the Lessee drilled a second well that was also successful--that my royalties would be increased as well.
I have already rec'd some payment/acre, in addition to the 1/8. Is that not the usual thing. Maybe it makes my "deal" just a tad better?
r w kennedy said:
Gina, the well isn't drilled yet. It was right on the verge of being drilled when I guess other more important matters came up. The fact that they got all the way to setting surface casing tells me they were pretty serious.
By 1/3rd, I mean 1/3rd of what your 1/8th/12.5% royalty would bring you over the life of the well, and there is always a chance that another well could join the first and that would increase the buyers profit considerably. $750 isn't alot of money when you are taliking about even fair producing mineral acres.
$750 per acre (after capital gains) at a rough guess would be about equal to 80 to 90 barrels production of oil per acre and a good well could do that in 1 year, a fair well could do it in 2 years, a poor well could do it in 3 years. Any production in the next 10 years or so would be profit, which could easily tripple or more their money.
If your lease should happen to expire with no drilling, you could possibly lease again for some hundreds of dollars per acre and a better royalty next time.
I would be inclined to wait awhile to see what happens but there is nothing wrong with selling if that is what you want to do. I would use, I think the name is Mineral Web. You could tell the company that made the offer that the minerals are on auction, it's business after all, you want to get the most they will bring.
That's very interesting. Thanks for the info.
Mineral Joe said:
There was a tremendous amount of interest and activity after the Jake Niobrara well but after everything was leased and they started drilling the horizontals, production wasn't anything like they hoped and many of the majors started leaving. I have minerals under the first 1280 spaced 2 section well Continental drilled in 9N that was supposed to kick off all horizontal Niobrara wells being 1280 spaced like in ND. The bad part is that 1st 2 section well was a dry hole, that and most other horizontal wells coming in all over the county were uneconomical. The spark that Jake caused in Weld and many surrounding counties has faded tremendously.
Gina, the lessee is the only one who has your authority to drill wells, they either assign it to the operator, are the operator or participate in the well and become a working interest. The operator would be the one drilling the wells and most often the one whose name would be on the checks for any royalty you would receive..
Gina, the way you stated it, I was under the impression that you inherited the minerals already subject to lease. Yes a per acre lease signing bonus is customary. If your current lease expired and you were able to lease again, I would presume that you would receive another per acre bonus and hopefully more royalty next time around.
I would consider what Mineral Joe says carefully, I'm reasonably certain that he knows Colorado better than I do. I take the long view often and I might wait to see if EOG drills or assigns their acres to someone else, or even lease expiration, which with a 1/8 lease, it could increase the value of the acres to be unleased should I want to sell. Nobody has a monopoly on the crystal ball in this business.
Noble is the better to be leased to as they are not sticking to the Niobrara formation but EOG is the next best and I hear they are now planning to do other formations also and they are the biggest driller along with Noble. Take a look at the oil and gas production ad gis as they are so easy to use and have tons of information on offsetting wells, permits, production and much more. If you do decide to sell some, don't sell it all. I hadn't looked at 58W in about 6 months but if I remember it should be like $1200 per for that at the average 15% 3+3. Two years ago it was more like $2500.
Sorry if my post was vague. I inherited the acreage. And it is currently under a Lease, which I signed (after an attorney--but not an oil and gas one--looked at it.) There are two years remaining on it, but it states that as long as there is drilling in progress, it won't expire. This has been a huge learning curve for me and I appreciate everyone's input. I guess I have "sucker" written on my forehead. But, you know, I'm grateful for just having the inheritance at all. My family did not come from money, and I am the end of the line. I'd just like to do the best I can from here on out, and avoid making any more big mistakes.
RW, how would I find out if EOG drills or assigns their acres to someone else, as you have suggested?
r w kennedy said:
Gina, the lessee is the only one who has your authority to drill wells, they either assign it to the operator, are the operator or participate in the well and become a working interest. The operator would be the one drilling the wells and most often the one whose name would be on the checks for any royalty you would receive..
Gina, the way you stated it, I was under the impression that you inherited the minerals already subject to lease. Yes a per acre lease signing bonus is customary. If your current lease expired and you were able to lease again, I would presume that you would receive another per acre bonus and hopefully more royalty next time around.
I would consider what Mineral Joe says carefully, I'm reasonably certain that he knows Colorado better than I do. I take the long view often and I might wait to see if EOG drills or assigns their acres to someone else, or even lease expiration, which with a 1/8 lease, it could increase the value of the acres to be unleased should I want to sell. Nobody has a monopoly on the crystal ball in this business.
Mineral Joe, what do you mean "ad gis" ? Is it a website you are referring to? Sorry to be so dense. It's like you guys are speaking another language... like 15% 3+3 I assume that means 15% royalties for a term of 3 years and another 3 year extension? As I said in my previous post, I don't see a specific extension time as an option, but rather a continuance if there's any kind of activity going on.
Thanks again for your help (and patience)
GT
Mineral Joe said:
Noble is the better to be leased to as they are not sticking to the Niobrara formation but EOG is the next best and I hear they are now planning to do other formations also and they are the biggest driller along with Noble. Take a look at the oil and gas production ad gis as they are so easy to use and have tons of information on offsetting wells, permits, production and much more. If you do decide to sell some, don't sell it all. I hadn't looked at 58W in about 6 months but if I remember it should be like $1200 per for that at the average 15% 3+3. Two years ago it was more like $2500.
Gina,
any assignment can be found on the Weld County Clerk's web site. My apologies as I was in a bit of a hurry in my feeble abbreviated descriptions and my keyboard missed the n as I typed "and gis" Cogcc - http://cogcc.state.co.us/, you can pull up the gis map, production and tons of other info.
15% royalty is average in Co. leases, they are behind the times as 316ths is more average elsewhere. 3+3 is 3 year primary lease with an option to extend 3 more years which is a common average in Co. If I had the time I'd pull up your lease and the tract and look them over for you but for certain your attorney advised you poorly to have you sign for a 1/8th royalty.
It depends how old you are. If you're young and can wait it out, I would do a wait and see. If you're over 65 then selling out may be a better option.
Andrew, I'm one card short of a full deck. :> ) (51)
I joined the Weld Co Mineral group and one of the nice fellows did a search and said that there are plans in the works for a well. So it seems like it's close. If that is the case, then it might also be good timing to try to sell it. Or maybe you think that is even more good reason to hold onto it.
I guess, in order to hold onto it, I just want to make sure that what I could get by selling it is less than my 1/8 royalties (after expenses)
Thanks for your perspective.
Andrew Pietraszkiewicz said:
It depends how old you are. If you're young and can wait it out, I would do a wait and see. If you're over 65 then selling out may be a better option.
DEAR MINERAL RIGHTS OWNER,
You will be advised by the majority. NOT TO SELL, I was also advised this.
I decided to keep them, and very glad I did...
Best Regards, Ron Renfro
Ron:
Good advice from one with experience.
Ron Renfro said:
DEAR MINERAL RIGHTS OWNER,
You will be advised by the majority. NOT TO SELL, I was also advised this.
I decided to keep them, and very glad I did...
Best Regards, Ron Renfro
Ron and Charles,
Thank you very much for your input. I really appreciate everyone's help.
G
charles s mallory said:
Ron:
Good advice from one with experience.
Ron Renfro said:
DEAR MINERAL RIGHTS OWNER,
You will be advised by the majority. NOT TO SELL, I was also advised this.
I decided to keep them, and very glad I did...
Best Regards, Ron Renfro