We have 18.2 acres section Klose 151-103-34 - Klose 151-103-35 & Daron Williams 151-103-33. they do have pumps on them now but not much money. What are the pro's and con's of selling?
Depends on what you are offered. It also depends on whether you know there are going to be more wells or not. If you will sell for 36 times what you got last month and be happy, go for it. There will be more wells in the future. 1 well isn't going to drain a 1280 in that area. You can sell and take a very short term gain or hold it for a few years to take a bigger gain. Remember there is 15% capital gains tax for selling so an offer of $90,000 would actually be $76,500 in your pocket, whereas you get 15% depletion deduction from your taxes for your royalty. I would at least wait for a couple more wells to be drilled before I sold (fatten your cattle before you drive them to market), because it should bring a better price then since the sale is probably figured as a multiple of production, you would be getting paid according to new AND the older wells not to mention the amount per acre total you will receive per acre will go up because of the royalty you have collected in the interim. I'm not saying don't sell, I'm saying guage the right time to make the most of it if it is an elective sale.
The other side is the cash now.
Another consideration is they are producing acres, someone will always want to buy them. I get offers, some of them say they are final offers, then the potential buyer destroys their credibility by making a higher offer the very next week, Lol.
According to the NDIC, your well with Murex does not have a pump on it yet. Something to look forward to.
Diane:
I will second what Mr. Kennedy says in that the future will most likely see additional wells on your mineral area. Also, he noted that selling your mineral interests will result in instant cash minus the capital gains tax. Everyone has a different situation and if you are in need of instant cash, I would consider the selling scenario based on the formula given by Mr. Kennedy. If not, I would continue to maintain the minerals as it sounds like Murex is active.
Diane,
Most mineral buyers will take into consideration whether there will be future activity on your acreage and will be able to make a stronger offer based on that possibility. While some may use a "monthly multiple" type formula, most will use a discounted cash flow for production, plus a risked cash flow for future potential. The decision is really all about what you will do with the money if you sell. If you can use it to pay off debt or invest it to make a near term profit, those are great reasons to sell. Or if it just makes you happy and you want to buy a new car, there is nothing wrong with that. While you certainly may be able to get a higher number on the sale if you were to wait it out for future development, time value of money is a factor that should be considered. The longer those wells are pushed out into the future, the less they are worth. Ultimately, only you can decide how to manage your assets. Like r w said, if you decide to sell, as long as you are happy, that is all that matters. If you have further questions feel free to contact me directly.
Mike Brown
Diane:
Mr. Brown's advice leads me think he is in the business of advertising his services as opposed to a fellow mineral owner offering advice which would be in best regards. You be the judge and be aware that others are out there on this forum for the best of their own personal interests, whatever that might be.
Mr. Mallory,
The point of my post was to help Diane understand how a typical mineral buying company might formulate an offer, and what factors should be considered in a sale. Since I am not purchasing her interest, I have no dog in the fight as far as personal interests go. Time value of money is a concept that many on this forum would be better served to understand, because it is a significant factor in determining worth of an asset. As a fellow mineral owner, I sell interests when I think I can use the proceeds to make a better or less risky investment elsewhere. Asset management is a matter of evaluating risk, and minerals are an asset that should be treated as such.
mb
Selling producing minerals in the Bakken to invest somewhere else? After taking the 15% capital gains tax, to come out ahead after only two or three years over what the minerals would have paid, remembering the 15% depletion deduction, would have to be quite an investment and that would be if no more wells are drilled. I would not suggest you sell your Bakken minerals to invest in anything that you are not very sure that it will return at least 15% a year for some time to come because if in the next 5 years the operator comes back and drills another 5 wells per spacing, it will blow away your other investment you took a 15% hit on to get the capital, before you ever started. You already have one of the best investments there is right now, that's why someone wants to buy it from you, and someone still will want to buy it 5 years from now.
As per RW's example, I would not sell my mineral interests for 2-3 years of production either. Typically I would value producing wells at a 10% discount of future cash flow from remaining reserves, so it really depends on how long the wells have been producing and how much reserves remain. I would also want a buyer to provide a certain amount of value for future drilling, determined by the time factor in which the wells would be drilled.
Since we have no idea of what the offer on the table is, it would be hard to determine if it were a good number or not.
Thank you all for your insight on this.. Not selling.