Value of Oil and Gas Royalties in the Bakken Shale

Value of Oil and Gas Royalties in the Bakken Shale

Mineral owners looking for the value of oil and gas royalties in the Bakken shale will find important information below.  If you have any questions related to your specific property, please contact us.

Considering selling mineral rights in the Bakken Shale?  Additional information can be found here.

How investors value your oil and gas royalties:

Below are some of the factors that an investor will use to determine what they will pay for oil and gas royalties.  Keep in mind that each investor will have their own methods for the value of oil and gas royalties in the Bakken shale so careful consideration to their methods is important.

Type of Royalty Interest:  What type of royalty interest are you being paid for?  There are several different types of paying interests.  There are mineral interests, overriding royalty interests, and non-participating royalty interests to name a few.  Depending upon which type you own will be a key factor in the offer price.  Producing Mineral Interests are the most sought after by investors and command the highest prices.

How long has the well produced: How long the well has produced will have a significant impact on the offer price. If a well is newer (Less than a couple of years old), there will be a sharp decline in production over that period.  This sharp decline in production is called the decline curve and is determined by analyzing well production data in the immediate area of a new well.

Consider the following example.  The first time you open a can of soda, a vast amount of pressure escapes the top.  The more you drink the less pressure remains in the can, ultimately ending in very little pressure left if any.  This is a simple explanation of a wells production expectations.  When the well is completed and begins production the well produces at high rates, but just like the can of soda the production slows rapidly before flattening out.

For newer wells, investors will heavily discount your royalty checks in anticipation of this rapid decline.  The six month average revenue calculation above will result in a higher offer price than you should expect to receive, unless future well potential exists.

Conversely, an older well that has produced for a number of years provides for a much more reliable cash flow forecast making it easier to evaluate pricing.  However, an older well runs the risk of no longer producing so nothing is without risk to an investor.

Market Prices:  Current oil and gas prices will play a significant role in the value of your royalties. If the oil price is $100 dollars a barrel, the value of your checks will be larger than if oil prices are $50 dollars a barrel because the production is worth more.  Investors use current oil and gas prices to estimate a future income stream and generally speaking, higher oil and gas prices mean higher offers.

Surrounding Wells:  The wells surrounding yours will have a big impact on what an investor pays even if those wells are no longer active.  The reason is that these wells provide insight into the most likely scenario for your well.  A savvy investor will check the closest wells around the well you receive royalties from and use that to predict future production expectations.  For our techie readers, this is called “evaluating a type curve”.

Low Ball OffersWe hear way to many horror stories about mineral owners selling oil and gas royalties in the Bakken for pennies.  Do not be fooled by “top dollar” offers.  If you are contemplating selling oil and gas royalties, reach out to us.  We can help you.  

What are the value of Oil and Gas royalties in the Bakken Shale worth?

The value of your oil and gas royalties will vary depending on a number of factors (discussed below) but generally speaking the following calculation will be a good guide:

Take the average of the last 6 months of checks you have received.    Once you have done this, you can then expect to get anywhere from 36 months to 7+ years worth of production.
Let’s walk through an example:

January    $500
February  $475
March       $525
April         $500
May          $525
June         $500

6 month royalty income total: $3,025  /  6 months =  $504 monthly average royalty income

Since you can expect a buyer to pay between 36 months and 7 years (84 months) of your monthly average, your expected price range should be:
$18,144 (36 months X $504) to $42,336 (84 months x $504)

That’s a wide range isn’t it!  So how do investors determine the value of oil and gas royalties in the Bakken Shale? Keep reading!

How to Sell Oil and Gas Royalties:

To find out the exact value of your royalties, it’s important to accomplish two things:
1. Know the factors that investors value and determine how those factors relate to your royalties
2. Market your royalties to as many investors as possible.  Contact us for help.

Mineral Owner Inquiry Form

Do you have questions about your oil and gas royalties? We can help! Simply fill out the form below with your questions and we will contact you.

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