Please note: This is not legal advice and does not form an attorney-client relationship. See endnote.
Pricing by township and range – and by broker, operator and competition.
You don’t say what your current offers are, but the ones in your March entry seem less than the currently prevailing rates in the broader Weld County area and relatively low in relation to the expectations of the operators.
Generally, as the question implies, the “going rate” for mineral rights on a particular tract depends on a lot of factors, including: where the acreage is in relation to known producing wells, how much acreage you own, what percent you own, what the operator (or its landmen or independent landmen [the term includes women, too]) may know about the formation that you don’t know, what other potential bidders know about the formation in the specific area, whether other potential buyers are interested, what their ceiling price is on their interest, whether they’re trading for their own account or whether they are working for the operator, trend analysis, and so forth. One of the big unknowns – at least publicly – is whether the Niobrara play on horizontal oil wells will have fairly uniform success throughout the formation or whether success will be localized and dependent on variations within the formation. To a large extent, that’s what the betting is about now.
As this site attempts to collect, what your neighbors receive on similar properties or similarly constituted underlying formations (which may vary from section to section) has an impact on what a fair market price may be. However, the highs and the lows may or may not be representative of actual value for any tract. But to a large extent, that is the information most land and mineral owners work with.
Also, it is sometimes a common statement among those in the “big oil” industry (as opposed to the “little oil” industry of people who own minerals but make their living in other jobs), that “The market price is what the landman or operator is willing to pay.” That’s a very convenient half truth. The other half of the definition is what a willing seller will accept. The “third half” of the definition deals with perfect information, which never happens.
Mineral valuations can be obtained by independent experts with recommendations as to what a reasonable rates should be. In my experience, those can range from $2k for a quick assessment to $10k or $15k or more for a more detailed analysis. It might be useful for mineral owners in adjoining areas to collaborate on a mineral assessment and also to form a collaborative bargaining unit.
A few other considerations to keep in mind:
If the upward trend continues, holdouts may receive better offers. However, if the bubble bursts, offers may simply go away.
Also, if the holdout insists on a price or terms that are too high for the operator, the operator may simply seek to force-pool that property. The mineral owner can contest a involuntary-pooling action, but if the operator prevails in demonstrating that the mineral owner refused a just and reasonable offer, the end result can be that the force-pooled mineral owner is left with no bonus, a 12.5% statutory royalty, a substantial risk-penalty/premium on costs, and eventually a participating interest after the operator recovers costs when the well reaches payout.
There is much more that goes into all of this, but these are some of the considerations.
As to the section in general, from what I can tell, out of 14 well sites, there are 11 wells not producing, and only one currently producing well – all at a different formation. Two additional wells are planned (Schneider). If Anadarko is making offers and the mineral owner is concernd about whether the operator will actually drill, Anadarko is a big player. They may be simply looking to hold rights until someone else proves out the area, or they may be aggressively budgeted to explore and develop in the immediate term. That may be a good point to address individually or in a hearing.
With that in mind and in light of other professional considerations, only these general comments are appropriate for a general response, although I’d be happy to talk to you more specifically off-line.
Best,
Mike Elliott
CLUNKY ESSENTIAL LEGAL DISCLAIMER: Please note that nothing in this or any other entry involving me on this site constitutes legal advice nor does it establish an attorney-client relationship. For professional considerations, my comments are limited to and intended only as general information regarding general issues that arise in the context of these discussions. To discuss specific issues, for legal counsel and/or representation in the context of an attorney-client relationship, please contact me directly at: melliott@elliott-legal.com; Direct - 720-341-1396; Central - 303-298-1020; Fax - 303-298-9944; Address - 1525 17th St., Denver, 80202. Thank you.
Pat said:
Michael, could you give me an idea what a good price per net acre for several 320 acre parcels in T8R61? Who would be the best company to invite to make an offer?
Michael Elliott said:
Among other things, PDC is co-applicant with Swanson Production on an application for eleven (11) 640-acre drilling and spacing units that was approved on the Colorado Oil & Gas Conservation Commission’s consent agenda last week. One of the Commissioners noted that the 640’s were now really 320’s – (presumably either because the application was being approved for two wells for each unit, or the spacing had been reduced during a pre-approval process. Wells Petroleum has been securing leases for Swanson in Weld & Morgan counties. It appears that the primary operator will be Petroleum Development Corp. FYI, I’m doing some work for mineral owners on the acreage included in the application/commission order.
Mike Elliott
melliott@elliott-legal.com
We are currently at $700/20%/5 year term - thinking we’d better sign soon. But if Weld County is that hot, I would also think that $200 is low.