Hi there…my sister and I inherited 5 acres in Reeves County seveal years back and started out with OXY/USA but last year they ( OXY ) were “ kind enough “ to quietly sell us to Permian Resources. 6 years ago the checks were pretty nice but in the last three year’s as we know the numbers drop. Last month I got $270. dollors. Request to P/R to find out why the two wells have nose dived from an average $800.00 per month to this is futile as their not real big on answering the phone. That having been said….when do you sell… ? I get lot’s of phone calls and letters from Mineral companies wanting to buy my half of the lease and typically the number is around $55,000.
Given the unrest in the world do I hold off on the chance of the U.S. fueling Europe and the checks going back up or will production continue in it’s current nose dive such that will bring an even lower offer for the lease. It’s quiet the conundrum…..any thought’s, theories or opinions ?
The primary reason for the decrease in the amount of your royalty checks: 1) Horizontal wells targeting shale formations deplete rapidly, and typically produce more than half of their total lifetime production in the first two years. They are a completely different looking animal than vertical wells of yesteryear, which targeted conventional formations, and had good prospects for secondary recovery.
https://www.eia.gov/analysis/drilling/curve_analysis/
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Very good point - but also keep in mind that there are multiple potential Hz drilling “benches” in the Reeves County area. Each with the potential of having 4-6 laterals per zone in any two section ((1280 acre) drilling & spacing unit (DSU).
The initial well will HBP (hold by production) everything that is shallower than that target zone across the entire DSU - so the operator has zero urgency to drill up either development wells for original producing well or shallower horizontal wells for the other horizons.
These undrilled reserves are all “future” royalty revenue - which may not be seen as revenue in your pockets for decades.
Groups looking to buy minerals are playing the long game - they want to acquire minerals for a low price now and then reap revenues for decades to come.
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Thank you for your reply Buffalo. I was made aware of the production decline graph you included awhile back and this well is easily 72 months out….and look’s to me like this is about as good as it’s going to get I suppose. As a guess I wont be around in another 10 years so it maybe time to sell. And welcome to the Forum.
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Thank you Rock, I figured they just want to buy up huge swathes of land then turn around and sell to larger companies….. but decades later never crossed my mind ( which I don’t understand ) again Thank you for your opinion.
You’re welcome - one consideration regarding selling is that there could be other undeveloped formations above or more likely below the shale that was developed and produced your royalty checks, often called “upside” in the business, or otherwise called stacked pays. It’s likely that if the operating company was aware of another shale worthy of development, they would have tested it already, but not necessarily. Something to consider, and there are publicly available reports on the stratigraphy of the Delaware basin: https://www.shaleexperts.com/plays/wolfcamp-shale/Overview
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Unless you need the money, don’t sell. It took 6 generations for my inherited asset to pay off and will probably take 6 more for further development. I didn’t pay a penny for this asset so I’m keeping it for my descendants, with great-grandfather’s wise instructions to never sell the minerals.
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The common advice you will always hear is “Don’t sell your minerals”. Which is good, solid advice.
But everyone has different situations that may lead to going against the grain on this issue.
Remember, you can sell a part of your minerals and retain the balance. So, you get some cash but also still have an interest in future production.
In areas like the Permian Basin and especially the Delaware Basin (where most of Reeves County sits), any mineral owner needs to be TOTALLY aware of how many zones of interest exist that can be exploited using horizontal drilling and frac stimulation.
Depending on location, up to 7-8 different Hz landing zone targets / benches may be present.
Depending on the size of your mineral position, I would highly recommend that one gets an O&G expert (either geologist or petroleum engineering) who is familiar with the area to give you a top to bottom evaluation of potential target zones - along with theoretical recoverable O&G in place information. For all depths.
This should give the mineral owner a decent estimate of what really is associated with their minerals as to potential future production and revenue.
Although no one can know when an operator will drill and develop additional horizontal benches, it is possible to look at various scenarios and drilling / timing scenarios to give one an idea of future revenues (which can then be discounted for the timing of drilling and production)
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It’s possible there are 3 producing zones in Reeves County, Delaware Basin.
Ann Whitchurch