My family was recently approached by a land company with an offer to buy the royalties from one of two producing wells on our property in Mercer Co. Pa. We have little to no knowledge on this matter as these leases were passed down to us. As far as we are all concerned the royalties we do receive seem like nothing to us given there are two wells on the property. The company wants to buy the royalties from one well outright but also expects us to give them half the royalties from the second well as a bonus. Any input is greatly appreciated. How do we know what a fair offer is?
Kevin, my question is they are offering to pay you what? In exchange for royalty from 1 well and half the royalty from the other well.
You do realise that they don't come along and just buy minerals because they think they are handy to have around? If they are buying they think there is large profit to be had somewhere. Oil and gas people seem to not think in ranges of 10%, 20% or even 30%, they are all looking for the killing. If you have been approached to sell, it is your job to find out what this killer opportunity is. I think it likely that the wells are at least due for a workover to increase production and you may be about to get a new well.
Kevin, one of the most effective ways to negotiate is to not negotiate. They want what you have or they wouldn't have asked. Just tell them thank you, but no and hang up. Reply to letters the same way or throw them in the trash or use them for fire starter. If they want your royalty badly, they will soon get back to you with better offers. Remember that all offers they make you already have their profit factored in, and I have already mentioned what they think is reasonable profit. If they buy from you, they think it will be for less money than you would have had coming if you just held on to it in the first place. They are the professionals, take their advice, they think it will soon be worth more than they offer to pay you.
Remember that advice if it doesn't pan out for you. I've seen big offers that were turned down and they never made near that amount. No matter what any one tells you, offers are not always left on the table and do get withdrawn eventually. No one here will give you $177k if you lose out and anyone would be plain stupid to invest without wanting to make a return and unless it is a guaranteed return of 10%, 20% or 30% they'd be foolish to invest and take any risk at the chance of only making 10 to 30% if so I have a bridge to sell you. The well casing could collapse, there are risk. Talk with the operator and see what they have to say about what they maybe doing in the future there. If you are only selling a wellbore royalty then it can possibly just come down to do you want a lot of money now or take it over time like you are. Just make certain if you decide to sell a wellbore royalty that the deed is correct with what you believe your selling, for $177k get an attorney to take a look.
Kevin, you should also remember that some advice you get is from people who buy and sell mineral rights. If they hedge their bets and sell and are wrong, they will buy more mineral rights later, they are still in the game. Ask yourself if you plan to go into the buy and sell mineral rights and royalty business?
Kevin, you are here for the very reason that you don't have knowledge that you need. You could deduce that someone thinks they can make a killing if they buy your royalty because that is how they work and they have made you an offer. I will stand by what I said. I will add that because you don't know, I think you would be in greater danger of loss to sell.
I am also going to throw the criticism back and say to remember the advice of another poster who always complains when they hear anyone say don't sell, that those who say don't sell will not give you the money if by chance selling turns out to be the better option. They neglect to say that they will not give you the difference if the rights you sold are worth tripple what you sold them for.
I don't buy and sell minerals or royalty. I have no vested interest to encourage people to sell.
The other poster has said that nobody has a crystal ball and that is true. I do have a good understanding of the nature of the beast though. In the past week someone came here with a company wanting to lease him with an existing well but they seemed to be much more secretive than usual. I suggested that they may have a spacing with 6 wells already. When they gave me the legal description, I fond they had not 1 but 6 wells. Also in the past week, a lady came here to figure out what to do about an offer to buy the mineral rights that were not paying her or her sister very much. I suggested that she may be getting a new well and within minutes it was confirmed that she was getting a new well. You can put as much or as little weight on those facts as you wish, but both I and the people who want to buy your royalty think you would be better off not selling.
You don't know at this time what makes those wells so valuable. I don't know how much they are paying you at present or how long it would take them to pay $117,000 at their present rate. I don't know exactly what is in store, rework, completion in a new zone, or if possibly they are verticle wells that are going to be plugged back, have a hole milled in the side of them and drilled as a horizontal. To ask the operator what is going on is a good idea which may not work if it's the operator trying to buy your royalty through an intermediary, but it's worth a try.
Kevin, that's the best I got with the information available. Now another poster can come in and rip me to shreds, but remember, their sell argument comes down to Ooh, you don't want to miss out, which seems to encourage you to be the first on your block to sell something that has made you money, continues to make you money and probably will continue to make you money, and possibly alot more money in the future or you wouldn't have received a buy offer. You make your own luck in oil and gas with knowledge, I wish you good luck.
Kevin, that sounds like an interesting lease, signed 40 years ago and no well until 6 years ago? If you don't mind my asking, what was the primary term of the lease? Were rental payments necessary to keep the lease alive all this time with no well, exploration or production? I suppose you have already asked the lawyer about the lease possibly being an unconsionable bargain?
Kevin, an unconsionable bargain is one that nobody in their right mind or had any knowledge what they were doing would make. For a contract to be legal, you have to have a meeting of the minds, that is both parties have to know what they are giving up. If I was off my rocker and sold you a profitably producing oil well for $1, after the guys with the butterfly nets and the white jacket caught me, whoever was then handing my estate would be coming after you to get that well back because it was a deal nobody in their right mind would make.
Kevin, when they offer far too much, they tell me something and I need to find out exactly why they are offering that much. The lady I mentioned above, was offered $8,300 for mineral rights with 2 wells that was paying $13 per month. If you do the math, the purchaser will make their money back in the might as well be never. It's just too much and Michael Hutchinson confirmed she was getting a new well within minutes of my post. I said Michael's night job was "Genie of the lamp". Same quality of disparity in your case if not more.
If there were something wrong with your lease, the sale of the royalty would tend to clean up the problem, and leaving you half interest in the one well if the problem with the lease came to light would look less nefarious. Until the problem with the lease came to light, things would continue as is.
Kevin, I can't swear it would do any good but for my money it would be worth 2 hours time of a top notch oil and gas attorney who is also a trial litigator to take a look at your lease. I wasn't kidding above when I said that it could be the operator through an intermediary trying to buy your royalty as a safety precaution.
I think you really need another set of eyes on this. There is an 800 pund gorilla in the room and his name is why offer so much? Why do they want that $200 a month royalty so badly? Why are they willing to offer you $177,000 73.75 YEARS [if it doesn't decline] worth of royalty? A more normal offer would be 36 to 60 months worth of your royalty. Why not invest that much money in a blue chip stock instead?
Another factor is if they are making a huge mistake, they are probably going to reveiw the reason why they are paying the sum of $177,000 and if they don't remember or can no longer find the reason to purchase for that price, they won't go through with it. For that kind of money I would assume they are professional, I would also assume that they will not be hasty, that they will make that reveiw. I just don't buy into that it's a spur of the moment $177,000 purchase and that you had better seal the deal before they wise up. I am sensing purpose here.
r w has been learning so much as he should being he answers most every question asked here. I wonder how he finds the time but he is wise in the fact that it does seems to be more than meets the eye but a fact is a fact, you just need to make certain you understand all the facts and that you are not giving up a golden goose. I have only been in the oil & gas business for 30 years so I have a lot to learn but to me it all comes down to common sense, returns and logic or common sense logic that gives you the best returns with the least bit of risk. Not all should be sold, not all should be bought but when one only believes in one direction they sometimes don't end up where they want to be. If your not in it to win it then it makes no difference and follow any path. Sometimes there are just good deals and not everyone is out to take advantage of you. If someone is out to make a killing off you, they are as much as cheating or stealing from you. There are crooks everywhere but I don't believe everyone is a crook.
r w gives good advise in that you should be cautious and make certain before you proceed that you fully understand everything, repetitious but I know myself and r w both want you to not be hoodwinked.
r w, if your not getting paid for all your work here, you certainly should be.
Joe, I am the most handsomely paid person on these forums, the payment is in the form of satisfaction of helping people and the amount of knowledge gained from each thread. My duties as electrician, plumber, auto mechanic, carpenter, computer technician and cook leave me little time here but I enjoy this so much that I would and do sacrifice sleep to be here often.
Minerals are forever, generation after generation. The technology continues to advance so no telling what the future holds. I say, never, ever sell your minerals not matter what they are offering. But if you decide to sell, be very careful and read all documents over several times. Get professional help in negotiations also.
I am not rich enough to think much about a relative that is generations away, I tend to think more about the present but definitely seldom beyond my lifetime, few have that luxury.
I seen some minerals selling in Washington, perhaps in a few hundred years they'll be valuable and one should think about how my future relatives generations from now could benefit and I should take out a loan to purchase for them. Actually I see minerals for sale daily and better take out a loan to purchase all of them because one can not lose and it's so wise all banks know this and will loan me money because they know it is such a sure deal.
I sold some minerals in Co when prices got too high and bought in Ok with that money, the Co fell apart and they are worth little now, the Ok has a new well, if I'd never sold I'd have lost a lot of money and why own minerals if it is not for profit. What I hear is senseless or bad management of investments.
r w, I only meant I and many others appreciate your contributions you are giving. I see in all your comments in your writings how you have developed your understanding and knowledge.
Thank you Joe. I was serious in my post that I feel privileged to be here, that as much as I may have been able to help someone else, I have been richly rewarded with the help I have been given and what I have learned by helping others. Joe, I would like to thank you, for help you have given me in the past and all the help I have seen you give others.
Joe, we don't always agree, and as long as we hold our opinions honestly, when people read our wrangling, I think they are getting not just their money's worth but double their money's worth. There is often not a single correct answer. Joe, this forum and I personally would be much poorer if you were not posting here, thank you.
Mineral Joe said:
r w, I only meant I and many others appreciate your contributions you are giving. I see in all your comments in your writings how you have developed your understanding and knowledge.