About Bob Von Rhee Expertise How do you know where to drill for oil or gas? How do you accomplish this task? How many people are involved? How much money? What is the chance of success? the economics? Why don`t all oil and gas wells make tons of money? Why do we need oil and gas in our country? How can we tell if a property has any oil or gas potential? Why can`t we believe everything we see on tv or in the newspapers about oil and gas? What rocks contain oil and gas?
Experience 30 years as a petroleum geologist. Began my career with Exxon in West Texas; worked for many smaller independent companies and now own and operate my own production company and geological consultancy.
Organizations American Association of Petroleum Geologists, and Certified Petroleum Geologist. Tulsa Geological Society, Oklahoma City Geological Society Licensed Petroleum Geologist in Texas
Publications American Association of Geologists Web-based "Search and Discovery"
Education/Credentials BA Geology Lafayette College & MS Geology University of Illinois.
Expert: Bob Von Rhee Date: 1/27/2008 Subject: Mineral Rights in Montana
Question I am the new Chair for the Trustees at a small Methodist Church in Ohio. We inherited mineral rights to some land in Toole County, Montana. We received, several years ago, an offer to purchase these mineral rights by an Oil Company out of Texas. The offer was $100 and our church turned it down. Our minister just gave me the paperwork again and asked that I review it. I have no idea if these rights have any value or not - but I hesitate to sign anything away for $100 - I can't help but think that if they want it, there must be a reason. Can you tell me how to go about determining whether there is value or not? Our church hasn't much income to spend on legal fees - so would like a suggestion that would help us contain costs. Thank you so much for any assistance/direction that you might give to us. God Bless you.
Answer Ms. Matuschak. It is impossible to judge what would be a fair price for the sale of your minerals because I do not know the extent of your mineral holdings. I am not a petroleum landman, nor an oil and gas attorney, but I may be able to help you understand how you might judge the extent. It's entirely possible that you ownly own minerals worth $100 depending upon this.
Here's a concept. If you own 100% of the mineral rights below 160 acres of land, then we would say you own 160 "net mineral acres". Most transactions involving minerals are either leasing or purchase and nearly all involve the concept of "net mineral acres. If you owned 50% of the mineral rights below 160 acres, you would own 80 net mineral acres. If you owned 10% of the minerals beneath 160 acre tract of land, then you'd own 16 net mineral acres (nma).
160 x 100% = 160
160 x 50% = 80
160 x 10% = 16.
See how this works?'
Part of leasing minerals is the up front lease bonus paid. this is based on your nma. If you owned the 10% example above and leased your minerals for $200 per acre your bonus would be $200 x 16nma = $3200. The sale of mineral rights is similar to the sale of surface real estate but is quoted on the same basis as leasing. Minerals usually sell for a multiple of what they might lease for. BUT - this is higly dependent upon the location, the industry activity, the amount of competition for oil and gas rights in the area, etc. Therefore I cannot say with certainty what the circumstances are in your exact area. Sometimes minerals will sell for 3-5x or more the going lease bonus in an area. In very competitive plays, minerals may sell for 10X the going lease bonus. In the 10% ownership example above and a leasing bonus of $200 per acre, selling them could bring $600 to $1000 per net mineral acre. (3x-5x $200).
It is not uncommon for families to bequeath minerals through the generations and multiple siblings. Over the past 100 years or so, this has had the effect in some areas of breaking the mineral ownership into smaller and smaller fractions. If the original owner owned 100% (of 160 acres) and had 5 children and passed on 1/5th to each, and if one of them had 3 children and passed on 1/3 (of the 1/5th) to each and then if one of them in turn had 2 children and passed on half to each and if one of these were to donate their mineral ownership to your church, you would have 1/5 x 1/3 x 1/2 = 0.033 x 160 = 5.28 net mineral acres out of 160. Now, if the acres are in a remote - lightly explored and risky part of MT - they might only lease for $25 or $50 per acre. Thus if one were to offer to purchase the 5.28 nmas, one might offer as little as $75 x 5.28 to perhaps $250 x 5.28nma.
I think the key here is to learn how much minerals you own. Normally an oil and gas title attorney would review the records (of the county in which the minerals reside) and render an opinion. Perhaps the papers which bequeathed these to the church have a clue. If the degree of mineral ownership is indeed very small, you might consider selling them (see energynet.com for an excellent auction venue to sell) because it is unlikely they would generate much income, and if no one is familiar with how to account for and adminster these, it's one more headache. IF the mineral ownership is substantial - then someone may have been trying to take advantage of you with the $100 offer. You just have to do the homework and learn the size of your mineral ownership.
I hope this helps shed a little light on the matter.
Bob VR
