I own leased property in section 22, 18N 2W (between Ruston and Choudrant). Wildhorse has a permit to drill as of May 14, 2015 and plans to drill a horizontal well from the NW corner of Sec 15 to the SW corner of Sec 22. The unit is 1280 acres.My interest in 1/4 on not a lot of acres

I've been getting a lot of calls and offers for, first my mineral rights, and more recently, my royalty rights. The price started at $3000/acre for the minerals, and the latest is $6000/acre for the royalty rights on the current lease. If nothing else, it sounds like the interest is pretty high. 

These offers are starting to get tempting, but my problem is that I don't have enough knowledge to make an informed decision. I looked at the production values for other recent wells in my township, as I could find on Sonris. Unfortunately, there is no information listed for any recent horizontal wells. The production from the lastest vertical wells makes the recent offers I've been getting look very good. In fact, it makes me wonder why I'm getting offers as good as they are. I no longer live in Louisiana, so I don't have access to the rumor mill. Does anybody know what these guys know that I don't?

Many thanks

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Replies to This Discussion

Don't sell your minerals unless you have to for financial reasons. I would wait and try to lease or just live with the lease you have and wait to collect royalties if you are already leased. Ultimately you have to decide what's best for you.

Thanks. I appreciate your advice.

Well, that hits the nail on the head. Thanks Skip.

Those are generalizations intended to lay out basic guidelines.  For those with the desire to perform some research as part of their preparation for executing an O&G lease, there is always the public records down at the courthouse.  There may be leases filed but it's more likely that land companies are using memorandums of lease which provide notice that a particular piece of dirt is leased without giving any of the important terms.  What you can find is which of your neighbors are leased and, most importantly, is there more than one company filing leases for your immediate area?  If there is some competition for leases, take advantage of that.  Get an offer from more than one company.

So here's what I got out of the article.

1. They're probably guessing, but the rumor mill is strong, The potential buyers don't have solid information.

2. The tax rate on the sale of royalties is as regular income: "ouch!" The tax rate on the sale of mineral rights is the capital gains rate. Good, but I don't want to sell my minerals.

3. Get professional help because things can get complicated, fast.

That's a good summation.  The only area that is proven at this time is the Terryville Complex which is roughly the southern two thirds of 19N - 4W, the northern one third of 18N -4W, the southwestern quarter of 19N - 3W and the northwestern quarter of 18N - 3W.  That's a rough outline as some of those areas only have a few wells but MRD seems confident that they are similar rock to the locations of their better wells.  Once you get beyond those boundaries, it is pure speculation on the part of those making offers to purchase minerals.  Operators know more than the mineral/royalty buyers but what they know specifically is limited.  There has been one good well and one poor well drilled to the east.  IMO this is not a shale play that is continuously productive over a large area.  This is an over-pressured, tight sands conventional combo play centered on the CV group.  And as such it is limited in size and may exist in several distinct and separated "islands".  Leasing lands and drilling wells entails a good bit of risk as does buying minerals in an un-proven area.  For those who aren't interested in selling, it's a fascinating story to watch unfold.  For those who wish to sell or are considering it, be advised that multiple offers today will over night turn into zero the day a well in their immediate area reports a disappointing completion result.  Plenty of risk to go around for all involved.  That is the nature of O&G exploration and production and the management of mineral assets.

Skip,         Why do you believe that a sale of royalty would not qualify as capital gains?  I do not see a distinction between a sale of minerals and a sale of royalty for tax purposes.

When you're sell a royalty interest, you're not selling the asset.  You're selling an interest in the income stream from the asset.  That's my opinion, you may wish to check with the IRS for their's.

Though $6K sounds like it might be in the fair market range at this time, whether it is judged as sufficient would depend on the royalty fraction in the lease and any other valuable terms such as a no cost royalty provision.  The details matter.

No doubt that the details matter. The no cost royalty should markedly strengthen the value, The Pugh clause may weaken the value to a buyer, but not by much, while it offers me, the potential seller some retained value.

I've received three more offers since I posted this last week. One came in the mail as a complete contract for the royalties at $5,500 per acre...just sign, notarize, return, keep an eye on the mailbox for the check. I read it as best I could with my untrained eye, but I don't have enough expertise to know if it's legit or not. Skip, can you PM me with your contact information?

Click my name in blue and go to my personal page.  You can leave a message there or use the off site email address posted there.  Unsolicited offers that come with a check and a mineral deed are to be avoided.  That's not the way to do business and such letters are under scrutiny by the legislature with an eye to prohibiting such offers. 

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