Selling minerals rights, getting a fair offer?

#1

I’m in negotiations with the selling interest that my mom has in Martin County and would like to know what is a fair offer price for her mineral rights. Reed 1 A #1WA T2n BLK 34 Sec 1 A-396 T&P 227-38619 33 acres [NMA?] interest 0.005877 Chesser 12 #1,2 T1S BLK 36 SEC 12 A-659 T&P RRC/PETERS JJ 9 acres NMA 4.6 Inerest 0.007143 *the first one is in Howard County but is taxed by Martin County

#2

Ken, you have some great acreage. It depends on what your lease royalty is. Most buyers are buying based off of a net royalty acres (NRA) and not net mineral acres (NMA). That formula is NRA = NMALease Royalty8. Below are examples of the NRA Calculation. If your mothers acreage is leased at 25% she could get up to \$25K per mineral acre, or 12,500 per NRA, on the first property and maybe more. The second property trades for less but that is because there isn’t much activity.

11/48= 2 NRA 11/58= 1.6 NRA 118.75%8 = 1.5 NRA 11/8th8= 1 NRA

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#3

I am getting a lot of offers on production in Martin. They start by offering \$12,000 per net Royalty Acre. In the last two days I have seen this bump to \$17,950 and \$20,000 per NRA. Different groups, or at least it seems that way.

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#4

We are getting back 80 acres of land we will own 1/3 so basically 27 acres. We’ve been offered 9000 an acre to lease. If they are offering close to 20000 a net royalty it makes it tempting not to lease and just hold on for a while. I would appreciate your thoughts on not leasing.

#5

How much they are offering per net royalty acre is working on the assumption that your acreage IS leased. I mean, you don’t have to lease your minerals to sell your minerals, but net royalty acre offers are based on you already getting the lease bonus. (i.e. assuming your acreage gets developed, the buyer is essentially just buying the royalty from you)

So…assuming you can lease at \$9k per acre. And its a 25% royalty lease. And you could sell at \$20,000 per NRA. You would be getting \$9 + 20 *2 = \$49k per acre. In theory, if you are not leased, a buyer would give you something extra for your minerals as they will then capture the bonus themselves. IMO, if your lease offer is competitive you are probably better off handling that part of the transaction yourself. Plus you’ll get more offers for your minerals when your lease gets filled on record and people can see that you are leased. So I don’t think there is any downside to leasing at a market offer (whatever that may be).

That said, not everything is the same. Depends on operator, development, location. Nobody should be paying you \$20,000 per NRA in Martin unless your acreage is covered with wells/permits. Cause, really, the only way you can justify paying \$20k per NRA is if you know that there is going to be a ton of production coming in the next 18 months. But, it should be at least \$10,000 in the low case.

#6

So you’re saying it would be 49000 per net royalty acre after leased. So if we have 27 net minerals after leased we would have 54 net royalty acres. Compared to unleased we would roughly have 215 net royalty at 10000 per net royalty. The offer is basically the same except now your tied up in a lease.

#7

Sorry for confusion. I’m saying you would get \$49k per mineral acre, in total. And then you would be bought out and have nothing remaining. Other than a big pile of money.

You’d get 27 mineral acres leased at \$9k/NMA

AND

You’d get 54 royalty acres sold at \$20k/NRA

Again, I really don’t think you would get \$20k/NRA. The fact that you are unleased means that its very unlikely that you have a bunch of wells/permits on your land, that was just using your example # for a royalty acre in Martin. But let’s say you got \$12k/NRA.

Your 27 mineral acres would get you \$33k each.

Unleased acres are not equal to 8 royalty acres. There are not many operators who will give you a 100% royalty lease.

#8

What are unleased acres equal to? Thank you for your input.

#9

Unleased acreage is always “valued” as if it had a 25% lease. So, that should give you 2 net royalty acres per NMA, as long as all of the royalty is attached to the minerals. That’s not always the case in the Permian Basin. There was a 10 year drought in the 1950’s and lots of farmers/ranchers severed and sold royalty from minerals to keep the surface and leasing rights to their ranches. The only way to know if royalty was sold, is to run the title all the way out for your tract.

#10

An unleased acre is equal to the lease bonus + how ever many royalty acres you can get out of them times the amount per royalty acre. That last part is dependent on the royalty rate.

The value of a royalty acre is totally dependent on how many wells will get drilled and when. If you could get somebody to pay 100% of the costs and accept 0% of the revenue, then an unleased acre would be equal to 8 royalty acres. Which would get you zero wells, and \$0 per royalty acre. The win-win royalty rate is a lot less. If you are signing a new lease in the Permian you are likely getting 25% royalty. Thus, typically an unleased acre is worth the bonus amount plus the going rate for 2 royalty acres.

Sorry a bit of sarcasm here.

#11

Some of us you just have to beat in our head with a little sarcasm. I totally understand everything you’ve pointed out. However we were able to get 80 acres back on our 320 acre lease and I was trying to figure the value of leasing,sale or holding on a while. Just weighing all options. Thank you for your time

#14

How do you figure the the NRA vs NMA? This is all new to me, but I need a crash course bc Briley Minerals is moving on us fast.

#15

NMA:

The NMA is basically the # of acres that you own. If you own 100% of a 40 acre tract, you have 40 NMA. If you own an undivided 1/8th of a 640 tract, you have 80 NMA.

NRA:

An NRA is a royalty interest equal to 1/8th royalty rate on an acre. If you lease your 40 NMA at 1/8th royalty, you have 40 NMA and 40 NRA. If you leased it at 25% royalty, you would have 40 NMA and 80 NRA. Leased at 20%, you would have 40 NMA and 64 NRA. Etc. If your royalty rate is twice as much, you will get twice the revenue, and most folks would consider your acreage worth twice as much for the purposes of buying/selling your minerals, thus it has twice as much NRA.

There isn’t much tricky to it. NRA just combines royalty rate and land ownership into a common unit. Each NRA yields an equal share of the revenue. Thus it’s a much easier thing to discuss as the unit of sale, assuming both parties understand what it is.

Hope that helps.

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#16

Totally understandably-I guess I have 100 NMA. Blk 35 Sect 12. Thanks!

#17

Sounds good. Congrats. Just figure out what your royalty rate is, and then you will know your NRA.

closed #18