Private Equity

$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,

Berlin

 

 

The Patch In Oklahoma

Times have been better, but they have been worse. Oklahoma oil and gas operators are in a pinch. Did Chesapeake experience a dead cat bounce today? Will Linn Energy survive to the winter wheat harvest in Tuttle, Oklahoma? Lease prices are down and the litigating is up. The only thing we know about prices is that no private equity shop or big Wall Street bank will ever hit the nail on the head. They will always be wrong. "This time is different," "macro-price environment," "commodity headwinds," "the land grab is over," "SCOOP STACK MERGE," "NAPE was interesting," "lot of cash sitting on the sidelines," "ENCAP or NGP?" It doesn't even matter. It's all a game. Not "the Greatest Game," but a good one. Pawns hand over their money and take a 2%/20% haircut for the chance to sit at the table. It's a resources play they say, don't even need geologists. A damn shame.

More to follow.

Berlin