Monthly Archives: May 2015

What it Takes to Value Mineral Rights

When you get a mineral appraisal the appraiser needs all the info they can get. The more the merrier. And it needs to be organized. I basically cannot deal with a huge banker box of unsorted check stubs, often duplicated, etc.

Organize the information. This is what I need.

A LEGAL DESCRIPTION of the property being appraised.  That may be on the oil and gas lease (OGL) and I want that document too.  However, some leases are not recorded; rather an assignment is recorded stating that it exists. That is a way companies attempt to hide what the terms are of their lease. They tend to do that when the lease offers a bigger royalty that your neighbors may be offered, but that’s another issue.  YOU should have a copy of that document. It is a legal binding contract.

A copy of the DIVISION ORDER for every well drilled that impacts you (and that means even those which do not lie on your property).

A two or more year history of EACH WELL INCOMES is required. The check stubs are useful in calculating what we call decline curves.  Please organize the check stubs for each well and each party that is paying you (some wells mean some checks may come from 2 or more partners)…The check stubs should match the month of production, not the date of payment (which could be months later.)

While Production figures are available on line from some states, in states where such info is not available, the check stub is the only or the very best source of information.  When I have to buy such data (when even available) expect your bill to increase dramatically.

co2gaswell_goodmanpoint2010 (Large)Non-producing wells are more difficult to value in many ways than are producing wells, especially in states where mineral deeds are not transparent and contain deed stamps…which limits same to maybe Arkansas,Oklahoma and a few others.

Rapid Decline & Slow Recovery * The Oil Boom – Bust Cycle

There is good news and bad news.  The good news is that wells decline very rapidly and the glut of oil production will evaporate rather quickly.  The bad news is that there is so much associated gas I suspect T. Boone Pickens (who is in his 80s) comment that he expects to see $6 gas in his lifetime…well, how long is his actuary table give him?  (if you didn’t see the video…)

The biz is in trouble. The service companies and drillers are going under and the majors are standing back. These companies are willing to simply keep operational with the lowest prices they can afford, but no one is biting.  So look for many small wireline, mud, tool, workover services and drilling companies fold up.  That means when production declines, ramping back up is going to be problematic.  Those energy “banks” are not going to want a piece of this. They are getting burned and don’t want to be the not so proud owners of a bunch of stacked out drill rigs.

The layoffs are not just in the field. There are already hundreds, if not thousands, of geologists and engineers being laid off.  And the young ones are likely to have a car payment and a house payment and may have some trouble getting out from under debt to even take on a new job, if they can find one in a related field, like hydrology or government service.

It was brought to my attention that Bloomberg ran an article (20 May 15) about how small companies were going bankrupt and leaving mineral owners unpaid for their mineral.  They are robbed.  That company can reorganize and go on drilling and producing. The mineral owner?  His or her interest may be lost forever and as a wasting asset, is basically stolen by the incompetence of the individual or company filing bankruptcy.

We’ve seen it all. It was obvious. Art Berman ….

… looks like a genius after being ridiculed by the industry.  But remember just because Cassandra was right doesn’t mean she was liked.  But even the Greek gods will not stop this crash.