$700,000 for a 1% ORRI

Oklahoma Mineral Owners,

Has the time arrived when it can be said that mineral and royalty buying outfits have truly lost their minds? Received a forwarded letter from a friend this past week where a well known, out of state mineral rights buyer offered him $700,000 for his 1% overriding royalty interest in a big Continental Resources, Inc. well is western Blaine County, Oklahoma. Truly a staggering sum of money. What type of reserves would have to be produced for that trade to reach payout?

Purchase Price (PP): $700,000

Gas Price (GP): $2.60/mcf

PP/GP: ~269,230

(PP/GP)/0.01 = ~26,923,077 mcf or ~27 billion cubic feet of gas (I'm a landman, not a gasman mathman, so I think this is correct, if it isn't, please comment)

Yes, this unit would have to produce 27bcf before deductions and taxes to reach pay out. Deducts with Continental are no laughing matter where they will easily skin you for 1/3 of your gross sales. Then kick another 25% to the taxman. Hard to see where this trade will pay out for this out of state, private equity backed buyer. She's making her cut, but the LPs are getting hosed and then don't even know it yet.

Despite the well results, I think we can conclude that the smart money would sell and and let the yield starved buyers talk about this one and the rest of their deployed capital at the Denver County Club.

More to follow,