My wife's family has 45+ mineral acres near Williston (154 - 100 Sect 7). My wife's share is only 3 net acres. We have leased to Brigham ($2200 per acre, 20% 3 years) as of May 2011. Two weeks ago Triangle started drilling two wells and plan on a total of twelve wells over the life of the project in Sect 6) It could be many years or a decade or two before more than the first two are drilled. This is a 2560 acre spacing unit. We have received a buyout offer of $8500 per acre. In light of the small number of acres it appears that we would be better off to sell since we would likely not realize $25500 ($8500 x 3acres) from the lease in our lifetime since most in the family are in their mid 60's. I'm interested in RW Kennedy's or any other oil & gas professionals take on this. Should we sell or hold on to the lease. Is it possible we may make more off the lease in the next ten years or so than if we sold.
Mr. Spears, I think it likely that you would see more development within 5 years, but there is no gurantee. If you were to sell, I would really like for you to sell it to a family member because it would be a great investment for them. That is a great area with probably 3 formations / zones that can be produced from and possibly 4 all of which would probably require multiple wells. The $8,500 per acre is a good bit less than I would expect the two wells drilling now to produce over their lifetime, ALL future wells would be profit for the buyer and there very possibly could be 20 or more wells in the future, as I said, a great investment for a family member.
If no family members have the cash to buy the acres from you right now and you feel tou have 2 or 3 years you could wait, I think you could collect a couple years royalty off the two wells and deduct it from the purchase price for a family member. I really don't believe that collecting royalty for a couple years off of these two wells would greatly reduce the selling price of the acres anyway so it could be a smart business move also. There is alot of oil under you and good field pressure under you, so that oil is coming out.
Now all I have to do is sit back and wait for someone who did no homework to blast me for saying there is more than one produceable formation. The fact that my friend Andrew is in the 154-100- 4/9 spacing means I have taken a good look at this area. Andrew has a Bakken well 130,814 bbl oil in 12 months with no pump on it and a Three Forks well drilling right now. Mr Spears, I think you are even closer to the sweet spot. Between yours and Andrews spacing is the SJOL well, which had problems in it's first 6 months, then produced 100,000 barrels of oil in the following 8 months, also no pump.
Only you know your financial needs at the moment so you will have to decide what is best but as I recently told someone with 158 acres in a great area, before first production is not the only time you can sell and the first few checks are usually pretty nice. Have a great day!
Mr. Spears:
r w offers very good advice in regards to decisions for your minerals. Another point to consider is the taxes that will have to be paid on the sale of this 3 acres. Pay close attention to the last paragraph of r w's post in that you know what your current financial needs are and the decision to sell is totally up to you. My advice is give a lot of thought to the advantages and disadvantages of selling vs. keeping these minerals.
Thank you Mr. Kennedy and Mr. Mallory You have confirmed my thoughts and the other family members will read what you have said very carefully and hopefully we will all make the right decision. I very much appreciate your good advice.
r w kennedy said:
Mr. Spears, I think it likely that you would see more development within 5 years, but there is no gurantee. If you were to sell, I would really like for you to sell it to a family member because it would be a great investment for them. That is a great area with probably 3 formations / zones that can be produced from and possibly 4 all of which would probably require multiple wells. The $8,500 per acre is a good bit less than I would expect the two wells drilling now to produce over their lifetime, ALL future wells would be profit for the buyer and there very possibly could be 20 or more wells in the future, as I said, a great investment for a family member.
If no family members have the cash to buy the acres from you right now and you feel tou have 2 or 3 years you could wait, I think you could collect a couple years royalty off the two wells and deduct it from the purchase price for a family member. I really don't believe that collecting royalty for a couple years off of these two wells would greatly reduce the selling price of the acres anyway so it could be a smart business move also. There is alot of oil under you and good field pressure under you, so that oil is coming out.
Now all I have to do is sit back and wait for someone who did no homework to blast me for saying there is more than one produceable formation. The fact that my friend Andrew is in the 154-100- 4/9 spacing means I have taken a good look at this area. Andrew has a Bakken well 130,814 bbl oil in 12 months with no pump on it and a Three Forks well drilling right now. Mr Spears, I think you are even closer to the sweet spot. Between yours and Andrews spacing is the SJOL well, which had problems in it's first 6 months, then produced 100,000 barrels of oil in the following 8 months, also no pump.
Only you know your financial needs at the moment so you will have to decide what is best but as I recently told someone with 158 acres in a great area, before first production is not the only time you can sell and the first few checks are usually pretty nice. Have a great day!
Mr. Spears,
From a geologic standpoint I confirm what RW has to say (I'm the one that does the homework) The oil is there in many formations yet undeveloped in the area and it will be coming for a long long time past your lifetime and certainly mine. In fact lifetimes are more uncertain than the long term production of oil in your area. Mr Mallory's comments abut the money come to me from nearly all my clients. Here is what I tell them. The greatest risk to the royalty owner is to become addicted to the income and spend it before its in the bank. That addiction promotes disappointment, debt, headaches, belly aches and family relationships suffer. Since life is so uncertain and family relationships are to be revered (you are old enough to know that) get your family together and suggest each pay their respective income tax when they get a check then put the rest in the bank (I buy gold at my age) and leave it there for about 4 years then on the first day of each year take out 1/3 of your share and spend it all on yourself. If you do that, you will never run out of royalty money to spend the rest of your life. You will always know what it is, look forward to it and avoid all the problems stated above. If the minerals were a gift from an ancestor, you will be able to pass that gift on to your offspring. Nobody knows how much it will be but it will always exist.
You can borrow against it on a rainy day and help other family members if need be. You can also take RW's advise and buy and sell shares within your family if need be. (I use mine to make certain my grandchildren are well educated) The situation in ND is unique to the oil business. Accept it for what it is and make it a joy not a burden.
Mr. Hutchinson gave great advice that I didn't think of, if no family member could come up with $25k you could incorporate and sell or award shares as you saw fit, putting at least part of it in reach for many family members. I do know that Mr. Hutchinson does his homework, geologically and I am probably in the infant stage compared to him in all of the financial ways to benefit from having such assets, but all so far seem to agree on the value, except possibly the prospective buyer and I expect they do too, although they would not admit it.