If you are considering selling oil and gas royalties in the Bakken, please read the post below carefully and consider reaching out to us for additional information.
What are my Oil and Gas royalties worth?
The value of your oil and gas royalties will vary depending on a number of factors (discussed below) but generally speaking the following holds true:
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)[/box]
That’s a big range isn’t it! So how do investors determine how much the value of your mineral rights are worth? Keep reading!
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 royalties. Keep in mind that each investor will have their own methods for valuing your royalties. That’s why it’s important to shop your royalties around to as many buyers as possible so you know who pays the most in your area.
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. 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.
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.
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: The current oil and gas prices will play a significant role in the value of your royalties. If oil and gas prices are high, the value of your checks will increase because the production is worth more. On the other hand, if oil and gas prices are low, you will be receiving less for the production so the value of your royalties will be lower. 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 Offers: We 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.
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
Below are the best solutions to accomplish these two things:
Solution 1: Bakken Mineral Owners Free Consultation
We speak with Mineral Owners all over the Bakken Shale every day. Royalty owners call us with questions about the value of their royalties and how they can effectively negotiate for higher sales prices.
Do you have questions? Get a free consultation with us by filling out the form below.
Solution 2: US Mineral Exchange Listing Service
An alternative is to market your royalties online and let buyers compete for your property. By listing your property online you can market your property to thousands of companies that buy royalties from all over the country. Unlike other listing services, with the Exchange you will get a dedicated account rep to guide you through the entire process and make sure you are comfortable along the way.
You can visit them at www.usmineralexchange.com. BMO readers receive a free listing. Use the following code: BMO
