I am a partial owner in the Conroe Oil Field. My interest nets me about $1,500 a month. I have been offered recently $251,000.00 for my rights. My question is if a company can offer me this much for my royalty, what is the real value of the royalty for them to be able to offer me so much up front? Is there a percentage discount from total value that is a standard offer? I know if they are offering me this much it has to be worth at least double to keep it. Thanks for any input you can offer.
Austin,
The value to a buyer is in the future potential of the property as the buyer sees it. In your case, the buyer must see much more than a royalty stream or may be trying to get you into negotiations. The value to you should be measured by the opportunities net cash may bring you that would be lost by holding. Only you can measure that. There is no standard discount from total value as that must be measured in risk taken in a transaction. At the amount being offered, it may be worth you while to have a local, independent Oil and Gas Geologist advise you of the geologic potential if you haven't already done so.
That sounds like a great offer. Take the money and buy some Netflix stock with it.
Austin: I am in a similar situation with another old oil field on the Gulf Coast. Our Family has received a six figure offer also from a few royalty buyout firms. It is hard to estimate potential payout but typically these offers are much less than the potential long term payout. Denbury Resources will be conducting CO2 Enhanced Oil Recovery Floods in several old oil fields along the Gulf Coast. The Conroe Field is one of those that I believe will be scheduled for EOR in a couple of years. What is interesting is that once these floods take place the estimated recoveries will be like a bell curve with the first six years in the incline stage, the following six years, maximum production, in the plateau stage, and then declining over a period of the remaining 18 years of production. This gives us an idea of the long term potential. Our field is scheduled to begin CO2 treatment at the end of next year. It will then take an additional year for the CO2 to work to loosen the oil deposits for production. Exciting technology for sure. Hope this helps. You might go to the Denbury web site or Google Denbury CO2 enhanced recovery for more detailed information.
That sounds good, but it is potential or estimated recoveries. It's not a sure thing. I believe they are spotting him about 14 years now if he's receiving 1,500 per month.
Don't forget that you will have to pay TAXES on that. Take that into consideration if you decide to sell.
Thanks for the replies so far.
Mike, this field is also having a new pipeline run into it. There has been a lot of interest in the field. I got a $240k offer in 2008 when oil was at $150 a barrel. Now bigger offers with oil only at $105 a barrel. It has been so hard for me to get any information on valuing these leases, I get offers at all kinds of amounts. The closest estimate I have gotten from a financial advisor based on annuity buyouts to expect an offer no greater than 60% of total value.
Thanks Pete, I realize the tax implications of an immediate cash sale.
Dave, I already have a stock portfolio bigger than these figures, I would like diversity of income streams.
Thanks again all
It may also be 60% over total value. The advisor doesn't know unless he has a crystal ball. Johnny Carson used to crack some good ones about his financial advisor, Bombastic Bushkin, in his monologues. "Bushkin got me into a great venture. Western Sizzlin steakhouses in Calcutta, India."
Dave: Those of us with grey hair and investable assets have had a few "Bombastic Bushkin's" in the past and I have had my share. In reviewing Denbury's projections they seem to be confident in their reserve estimates of the fields they plan to flood. I don't know what Austin's monthly production figures are for the Conroe Field but Denbury is projecting a 15-20 MBOD at peak production if I am reading their chart correctly. The Conroe Field is expected to be in production in 2017. They report that peak production will commence about six years of first production and maintain production levels for six or seven years before the decline rate begins.
BTW, I think that McComb is a well known and respected Montgomery County name. I think there is a McComb Rd. and that they may have been one of the early developers around Conroe.
Dave,
Yes the road is named after my father, and my grandfather was a lawyer, county judge and first owner of "The Courier", the daily paper. My great grandfather was a lawyer and two term Senator from District 15 in Montgomery, Texas, moving there from Sherman, Texas in 1877.
Thank you for posting that. I knew I had heard and seen the name. Impressive lineage.
How funny. Bombastic Bushkin is writing a tell-all book about Johnny called "Johnny Carson", due out 10/15.
In it he alleges that Johnny divorced his second wife because she was having an affair with Frank Gifford.