AboutFrederick M. Scott CMM Expertise I can answer questions about oil and gas leasing, and give suggestions on how to respond and what to expect when contacted by an oil company or their representative offering to lease your minerals. I can answer questions about selling or buying minerals, and can provide advice that will help ensure you get a fair deal. I can also answer questions concerning forced-pooling, correlative rights, deeds and conveyances, and the infamous "post-production" costs that are often deducted from royalty checks. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.
Experience I am a Certified Professional Mineral Manager (CMM) (certified by the National Association of Royalty Owners in Tulsa, OK) and have managed my own oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, attorneys, and other oil and gas professionals in the process of doing so. I am also a member of several professional associations and have written articles of interest to royalty owners which have appeared in several industry publications. I have prepared deeds and done title work and curative for my own minerals; and have acquired a good deal of knowledge on the subject of oil and gas law and landwork in general in the process.
Question Mr. Scott - I am the owner of an overriding royalty interest(s) (not sure if it should be plural or not) in Okmulgee County, Oklahoma. It is shown in 2 tracts -
TRACT 1: Lots 1 and 2 (N/2 NE/4) and Lot 3 (NE/4 NW/4) of Section 3, Twp 13N, R-11-E
TRACT 2: East/2 of SW/4 of Section 34, Twp 14N, R-11-E, except right-of-way of the Oklahoma Southwestern Railway Co.
There are gas and oil wells involved. I wish to sell this/these interest/interests, and have a prospective buyer. He has not made me an offer, asking instead "what I'd take for 'em." I have only the foggiest and probably mistaken notion of how to arrive at a price to quote him. I have check stubs for most of the past 6 years, which of course provide info such as lease name (Carpenter and Thompson), production, price, and so on. My question: Can you provide me with a formula or process whereby I can turn the info on these check stubs into an informed quote that I can present to my prospective buyer? Aside from that, if you have any top-of-the-head guidance to offer regarding policy and procedure for transactions of this kind, I would appreciate reading it.
I hope I have included enough - if not too much - detail. Purely as a side issue - I realize your time is limited and the above question is the one I'm really keen on - I also apparently own mineral interests in Woodward, Lincoln, and Logan counties in Oklahoma. Their physical location is all the info I have on them, and I'm interested to know if any revenue is being generated...'cause I sure ain't seen no checks.
Thank you for your time.
Answer Cecil, If you're selling a royalty interest in producing minerals, a decent (but not perfect) rule-of-thumb used in the industry is to value the interest at 48 to 60 times the average monthly income over the past six months. Most buyers will start off on the low end of that.
Other factors used to determine price include how many wells are drilled nearby that are good producers (makes your minerals more valuable) and also how many wells have already been drilled in your particular section or spacing unit (too many wells means less room for new ones, which makes your minerals less valuable.)
You didn't say your offer was unsolicited, but just so you and others know, most unsolicited offers you receive are from people who've done some research about your area and discovered that a new well is being drilled or something, and they want to get in on it before it's drilled. Sometimes this pays off for them if they can buy some minerals there, and sometimes it does not.
Just keep in mind that when you receive unsolicited offers in the mail or by phone, there is likely something "going on" around your minerals that you might want to check out before you sell to the first person that contacts you. This does not mean these buyers are criminals or anything, it just means you should do a little digging to find out why they might have contacted you. Many unsolicited offers turn out to be good ones, but you need to be careful.
An example of a "good" unsolicited offer was one that I received several years ago in which I was offered 28 YEARS of income for about 60 mineral acres my family owned. This because the buyer had heard that a "great" well was going to be drilled there soon. I didn't sell to him because I was also aware of the soon-to-be-drilled well. Turns out the "great" well wasn't that great however, and it only ended up adding about $200 per month to my income, versus the $80,000 I could have receive had I sold them. Oh well.
Another factor buyers will consider when making an offer is the "decline rate" of your well or wells. This is the rate at which the production declines over the years. Some wells start off great, then peter out fairly quickly. Others produce well for many years. Buyers will take a wells decline characteristics into consideration when making an offer.
There are other factors as well which I don't have time to get in to here, but suffice to say I'd question any offer below 36 times your average monthly income over the last six months unless the well is brand new, which in your part of the state, I'd wager it's pretty old.
If you'd like me to look up a few properties for you in Woodward, Lincoln, and Logan counties I can probably get that done, given some time, if you'll send me an email with the legal description in it (section, township, and range, and 1/4 section if you know it) I'll see if I can find anything out.
I'm taking a short vacation this week, but will try to look at them and email you back what I find. Please send the legals to me VIA EMAIL at scottminerals.com. That way it won't tie up the allexperts space, plus, as I said, I'll be on vacation starting tomorrow so you won't be able to write me at allexperts anyway until I get back.
