Oil lease royalties question

[BA93]

Over the past 16 months, a relative of mine has received a very nice oil royalty for some land last owned in our family 50 years ago. Its in Zavala county. The amount has gone from a few hundred to per year up as high as 12 grand per month. Over the past few months, its down to 8 to 9 grand per month.

Some firm has given her an offer to purchase her share for 85K. To me thats seem low since at the current rate, that amount should be reached in 9 months or so.

Does this sound like a fair offer or someone trying to rip her off? I told her to keep the share unless she really needed the money now.

 

[kevwun]

Did she get a letter in the mail that was unsolicited? If so,tell her to burn the letter. Her share is worth a lot more if they're offering that much.

 

[BA93]

Yes, I believe it was unsolicited. Another company offerred about 25% less about 2 months ago. Almost seems like someone fishing to find a person desperate for money.

Is it normal to receive unsolicited offers like this?

 

[kevwun]

Yes, it's a common tactic in areas with a lot of oil activity. You described what it is perfectly. It's not illegal, but it's definitely ******. They prey on old people mainly.

 

[CaboWabo]

I think I would tell them to F off. She should know, however, that those royalties can come to a halt as quickly as it started up.

 

[kevwun]

That's true. If they're willing to pay that much, there's a good change it's not going to stop in near future. They're not offering 85,000 for no reason.

 

[DCA_HORN]

If these royalties have been in the family for years and they have increased that much it is due to more than just prices going up. Most likely there is significant drilling in the area. I would tell her to hold onto them. If you do get to negotiating be sure to hire a lawyer and engineer.

 

[Lat22]

No way. Keep your minerals. Little old ladies are always bringing in these bank drafts and they have no idea that they are getting ready to sign over all of their mineral rights. That is, until we tell them.

 

[badexcuse]

Forget it...I'll pay you $100K!

 

[rice97ut02]

I bid $101k

 

[SMDhorn]

If someone offers you $85k for something you already own, and they plan to make more money off of it...

I guess there are stupid people who fall for it.

 

[jmrob93]

My mom is in a little different situation-- the owners of the well are pumping a very small amount down from 2 yrs ago-- they have offered to buy all the shareholders out-- my dad thinks they are backing off to get them to sell then go full bore making lots of money

 

[BA93]

Actually this situation may be similar. The monthly checks started to drop then some offers were made to buy her out. seems suspicious.

How could someone check out what is going on? does the drilling company have to provide any data to the mineral rights owners about their future production estimates? Or are you at the mercy of them and their ethics? scary thought.

 

[ScoPro]

Maybe Kenny Lay ain't really dead.

 

[lnghrnpe13]

You can find production data for any oil or gas lease in Texas through the Railroad Commission website.

Here is the Link

 

[lnghrnpe13]

The most likely scenario is that a well was just drilled or re-completed and production is now steeply declining (common for new wells) and thus you suddenly see an increase in royalties that are also steeply declining. If she is intereseted in selling these royalties she definintely needs to hire a petroleum engineer or engineering firm to evaluate current and potential (future drilling) value of the royalties.

 

[SullHorn]

In reply to:

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[marghorn]

South Texas (especially Gulf of Mexico onshore) wells tend to have a very quick decline curve. A resource play in West Texas may get you smaller royalty checks for 30 years, whereas Gulf Coast you would expect large checks for 2 or 3 years that then begin to decline quickly. For Gulf Coast a reasonable low-end value multiple would be 3x your annual royalty payment. Thus, I would tell your mom not to consider selling her interest for anything under $200k. Much more research would need to be done obivously, but thought I would supply a rough metric.

 

[Frogstyle]

Mineral acquisition by mail is 99% of the time a game played in bad faith as royalty snipes are essentially looking to create arbitrage opportunities at the mineral owners expense. My wife has leased up several unconventional acreage positions development pending non-participatory or back-in offers from reputable mid/large cap operators, so she’s practiced at refusing unsolicited chickenshit bids. I agree with whomever advised you burn the contract.