S/4 Section 26, Block C-8 Now That Oil Has Crashed

My brother owns mineral interest in 3.12 acres in S/4 Section 26, Block C-8 Reeves County, Texas. The operator is Colgate Energy. This 960 acre tract is called Guam State 26-21, it has 3 wells. The royalty interest is 0.25, however, it’s burdened by a 1/32 NPRI, therefore dropping the royalty rate from 0.25 to 0.21875 It was paying significant royalties up until the oil crash.

Last year we got a couple of estimates of the valuation being between $25-40K per net mineral acre. Now that oil has crashed, what’s this property worth? I’m trying to find this out for my brother because he will probably need to sell his interest.

You won’t get anywhere near that now. I’d tell him to hang on

Thank you. The outlook is not good. Unfortunately some people will not be able to wait it out for several years and will have to sell due to financial duress.

DavidR: unfortunately, this is the very worst time to sell right now. There are a lot of vultures out there trying to pick up properties for pennies on the dollar. One thing that’s true about the oil business is that it’s cyclical: things will turn around. If he can hold on until the industry recovers, it’s likely that he will get much better offers.

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Not to worry. It’s just not a good time to sell. Oil reserves in Reeves County are vast and drilling will come back. I still get at least 3 offers a week. Best not to sell anyway. Oil royalties should be good when the economy turns around.

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I recently received an offer to lease for oil and gas exploration in Reeves County. From what I’ve read on this site, it appears to be a low offer. As you mentioned, this is a bad time to be dealing with the oil industry. Is there a point in the price of oil where it would help in negotiations? Being a newbie to this industry I was wondering if the upcoming election would have an impact on my lease?

Brenda- Sounds like you should be a buyer of Reeves County minerals right now.

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You will not have to wait years. Oil and stocks will rebound within 6 months. Keep in mind one of the main reasons oil prices are at rock bottom is because of the Saudi & Russia feud. They are patching things up now and we will start getting back to normal. The pandemic will be under control in the next few months. Things across the board will normalize. Just hold off for the time being…

I don’t think oil prices were that high when I negotiated successful leases 2 years ago. Prices were $50/bl It was the potential for drilling in the area which spurred offers to come out of the woodwork. Obviously, if oil is down below $25/bl, that’s too low to get a good lease. The Bonus upfront is what makes the lease worthwhile for me. It will vary depending on how much drilling is going on in your area. You will know when it’s a good time to lease, when you get lots of people contacting you by phone and mail. The active production of oil on your Section will probably be a better guide the the Election.

I inherited these mineral rights 30 yrs. ago. Don’t have time to fish for Sellers, but have tried to buy my relatives’ interests. So, I’ve been in real estate for over 30 years and love all my rental properties. Best monthly income there is - even better than my oil royalties.

Aimee, I received my offer last week, is it best to contact the Agent that is representing a large oil company? If so, can you suggest some questions to ask to advance my negotiations?

@peptmf, there are may things you can do without an attorney, but negotiating an oil and gas lease may not be one of them. The issue is that, unless you are experienced in negotiating oil and gas leases, you don’t know what you don’t know and can get a very unacceptable lease when you do your own negotiating. The oil company agent is looking out for the interests of the oil company, not your interests. That doesn’t mean they are bad people or are unfair, it’s just that their job is getting the best deal for their employer.

You may want to check out the attorneys in the directory on this site, or go to lawyers.com or justia.com to locate an oil and gas attorney who could help you.

You’ll notice qualified oil and gas attorneys who serve mineral owners on the Mineral Services Directory page here on this site.

We highly recommend Wade Caldwell and his firm in San Antonio. His firm info is at the top of this page. We have been using this firm for the past 6-8 years

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