Value of Martin County royality?

Hi Everyone, Due an offer to purchase that came to my sister and myself the first of the year we discovered that we owned a royalty interest in Martin county, Texas. It was in our deceased mother’s name and we went through the process to get the title changed in the spring.

Now we are getting new purchase offers. Two in the last month. One for $5000 for each of us, and one each of us for $6200. The $6200 offer started at $2500 but more than doubled when we ignored the offer. So we are wondering what is going on. Since settling the title issues we have not received much royalties from the well. It is clear we don’t understand how to judge these offers.

Here is our royalty description from the tax appraisal: Ernestine 23, T3N Blk 36 Sec 23, A-186, T&P RR NW/4 is added on other documents. Together we have a 0.002748 interest.

What is this worth? How would we find out?

Thanks in advance for your help.

Rachelle

Rachelle, I am not a professional, just another mineral holder. The minerals cost nothing to hold, unless they are appraised at over $500. I get non-stop offers, even phone calls, tracking me through relatives. The source of the money is private equity–Wall Street money that wants desperately to diversify out of the stock market. Often the offers you get are from flippers. Look at the county records for the company that made the offer(s). Often, they turn around and resale their acquisitions.

If you are getting offers, then they know something you do not (probably) know. More than likely, your location is going to be drilled, and with horizontal wells, fracking and stack plays, you stand to make a lot of money. More than you will get from selling. They would not offer unless they stood to make at least a 25% return on your land.

Bottom line, I would not sell my minerals unless it was a matter of life and death. Mailbox money that comes in monthly is a wonderful thing, and Wall Street and the 1% chase it hard.

Just my .02 worth.

Camille

Hi Camilla, Thank you for the insight. I figured that the offers were from people who know more that me. The royalty property was drilled in 2013. We received some back payment after getting the title transferred this spring. Since then I received one small royalty check.

I don’t really understand how these thing work. Could Guidon Energy be planning additional wells, or to increase the pumping?

Rachelle

This link will open a map on a well in your section. Adjoining sections have multiple horizontal wells. If multiple horizontal wells were subject to your royalty, even a small interest could be worth a considerable amount of money.

I wouldn’t know without going to the Texas Railroad Commission. Was the well vertical or horizontal? I have had smaller wells, held by production, that got bought by XTO (Exxon), drilled as a horizontal well, and pay much more. I suspect they will sell to a big oil company, and that may be what is ‘known.’ Whenever you get the money, it will be great!

Hi Rachelle,

Here is where your tract is located.

Note the patches on the map that are covered with green lines. Those are horizontal wells. The unit just south of you has 31 horizontal wells drilled by QEP. That is an outlier, but that could possibly happen on a long enough time frame. There are also a whole lot of places that don’t have any horizontal wells. The game is this, somebody offers you significantly more upfront than you are currently getting and bets on Hz wells drilled in the future. They do this many times, in many places. The places that get a lot of wells drilled make them a good bit of money, they lose money in the other spots. If they do the math right, and don’t make any crazy assumptions about rig activity or oil price, they make money on average. Obviously if they can get people to accept lower offers then they do better.

As an individual owner, you don’t get to diversify. You either get wells drilled or you don’t on some finite timeline. There is usually a price where it makes sense to give up a little bit of your average value to grab a sure thing. New York money is a good thing as it brings in people who will accept a lower rate of return and thus can pay more, despite whatever stigma may be attached to New York money.

I don’t know what Guidon is going to do. Guidon has dropped rigs and is just running 2 in the Midland Basin. The odds that they come to your lease in the near future are low.

The Ernestine lease is, as far as I can tell, 196.5 acres. If you and your sister have a combined .002478 decimal there, then you have:

196.5 x .002478 x 8 = 4.32 net royalty acres combined

IMO:

  • 4.32 NRA

  • Next to highly developed unit

  • Mediocre operator in terms of likelihood of near-term development

  • Mediocre offset well results

= Worth > 3 times the $12500 you were offered combined. I personally don’t think selling is crazy but I wouldn’t sell for $6250 each.

Random stranger on internet, take with appropriate grain of salt.