To sell or not to sell

General Mineral Rights Discussion
#1

that is the question.

Specifically we have 80 acres of minerals in Dewey county Oklahoma. The offers to buy are very attractive only since new drilling activity in the area presently at $4000/acre and going up. Lease bonus’ are at around $1200/acre now. Our lease in being drilled and is locked in at $250/acre. In 3 years these bonuses have gone up that much.

1) Is it a good business decision to sell when offers are so high?

2) Are the buyers interested in something other than simply royalty revenue?

3) Will there be an opportunity to re-lease our minerals at a different depth if this well starts producing? We have a depth clause in our lease.

4) What are the minerals worth after a well starts producing or doesn’t produce or is marginal?

5) What do the buyers know or want to do that we as mineral owners don't know or not know to do that makes the minerals worth so much more?

I have never known anyone to make as much $$ on producing royalties as when the offers to buy minerals were so high...hind sight type of thing. Maybe over a 20 or 30 year period but in a 4 or 5 year period never.

Thanks.

#2

I don't think they are trying to do you a favor by buying your minerals. Collect your first years royalty and then decide. I would wager they intend to make their money back in the first 2 years, if not earlier. I have seen projections of $100 per barrel oil within 1 year. I'd love to be under a new or relatively new well when oil prices peak. When were the royalty's generated that you were looking at? Oil has been $60 to $70 for most of the last 2 years as I recall. You could be getting 30% to 40% more for your oil than they got for theirs. I would look at a historical graph display of oil prices for the last few years. In the end the decision is yours. I think you might do a little more research so it is the best informed one you can make. Good luck, whatever you decide. RWK

#3

My post on this forum is the culmination of months of 'research'. This isn't the first time someone has considered selling minerals. It seems someone out there would have very specific evidence of the pros and cons of selling minerals. I have spoke to no one willing to express that knowledge.

This specific area is mostly gas, the application is for gas anyway. Will the value of the minerals go down to nothing after drilling activity whether the well is good or not. A friend of mine had offers on the table for $5000/acre for his 45 acres in the early stages of well application/drilling in SE Oklahoma in 2007. The well hit big on gas and most people in the area were telling him to change his name to Klampet. It's been 4 years now...royalties plus damages are not even close to the purchase offers. He also owns the sureface.

With my limited knowledge of the energy industry it seems there could be a huge down side to not selling but a marginal down side to selling.

#4

You didnt say it was a gas only well. Gas has been really soft for awhile. I don’t see the price of natural gas rising in my most optimistic dreams lately. If it’s not a primarilly oil well, that changes everything and you may do well to get what you can now. Please disregard everything in my previous post except the good luck I wished you. I wish you double good luck with your decision. RWK

Rob said:

My post on this forum is the culmination of months of 'research'. This isn't the first time someone has considered selling minerals. It seems someone out there would have very specific evidence of the pros and cons of selling minerals. I have spoke to no one willing to express that knowledge.

This specific area is mostly gas, the application is for gas anyway. Will the value of the minerals go down to nothing after drilling activity whether the well is good or not. A friend of mine had offers on the table for $5000/acre for his 45 acres in the early stages of well application/drilling in SE Oklahoma in 2007. The well hit big on gas and most people in the area were telling him to change his name to Klampet. It's been 4 years now...royalties plus damages are not even close to the purchase offers. He also owns the sureface.

With my limited knowledge of the energy industry it seems there could be a huge down side to not selling but a marginal down side to selling.

#5

Although this area is producing heavy gas, I don’t see it affecting royalties that much. Thanks RWK. We need the double good luck.

r w kennedy said:

You didnt say it was a gas only well. Gas has been really soft for awhile. I don't see the price of natural gas rising in my most optimistic dreams lately. If it's not a primarilly oil well, that changes everything and you may do well to get what you can now. Please disregard everything in my previous post except the good luck I wished you. I wish you double good luck with your decision. RWK

Rob said:

My post on this forum is the culmination of months of 'research'. This isn't the first time someone has considered selling minerals. It seems someone out there would have very specific evidence of the pros and cons of selling minerals. I have spoke to no one willing to express that knowledge.

This specific area is mostly gas, the application is for gas anyway. Will the value of the minerals go down to nothing after drilling activity whether the well is good or not. A friend of mine had offers on the table for $5000/acre for his 45 acres in the early stages of well application/drilling in SE Oklahoma in 2007. The well hit big on gas and most people in the area were telling him to change his name to Klampet. It's been 4 years now...royalties plus damages are not even close to the purchase offers. He also owns the sureface.

With my limited knowledge of the energy industry it seems there could be a huge down side to not selling but a marginal down side to selling.

#6

$4000 per acre on just speculation is a lot. Your faced with 3 choices, sell all, sell none or perhaps the best is to sell 1/2 and lock in some big gains and then you face less down side risk but could participate in an upside. To me only a fool holds out and risk all or nothing. The ones here that say never sell are the same ones you’ll see at Vegas gambling and when they have lost most all they will keep gambling in hopes of getting it all back. You already seen what happen to your friend. If anything sell half and buy some somewhere else with it. That’s what I think.

#7

Joe, do I hear you saying there's a business reason for this high of an offer? It's too high for them to 'gamble' on this amount so there's solid geology behind it? I hear mineral investors planning on a 50 year period for ROI. Seems to me a large part of ROI will occur in the early months of a well's production which discounts this statement.

I like your advise about 1/2 and 1/2. And I've never been to Vegas... :)

Mineral Joe said:

$4000 per acre on just speculation is a lot. Your faced with 3 choices, sell all, sell none or perhaps the best is to sell 1/2 and lock in some big gains and then you face less down side risk but could participate in an upside. To me only a fool holds out and risk all or nothing. The ones here that say never sell are the same ones you'll see at Vegas gambling and when they have lost most all they will keep gambling in hopes of getting it all back. You already seen what happen to your friend. If anything sell half and buy some somewhere else with it. That's what I think.
#8