lots(most ?) lottery winners take the lump sum which is about 1/2 the 20 yr payout amount, in spite of the tax consequences. money has time value. and a bird in the hand ......... and all that.
a few years ago, the rule of thumb for buying a depleting resource like oil and gas minerals was about 4 - 5 yrs current net income. working interests were going for about 3 yrs net income. oil and gas interests have gotten a lot more expensive since then. the last time i participated in an auction, minerals went for about 2x that amount. imo, there are some owners who's best option would be to sell. and if there are any widows and orphans out there ......... On Oct 4, 7:12 am, David <[EMAIL PROTECTED]> wrote: > go-devil...what is going on is that a lot of these companies are > targeting people who have wells at the permit, drilling or even in > production but confidential stage and not yet sending out toyalty > checks (usually these begin 6 months after production begins or more) > It's pretty easy just by looking at information from the field to > determine if a still confidential well is likely to be a strong > producer or not, based on secondary info such as watching the > truckloading traffic, the size of the flare indicating pressure etc > etc, even when the well is not producing royalty checks. However, many > of the people targeted with these letters live in other states and > this cannot easily go out and look at what is happening right at the > well. > > These mailings go out in mass by these companies, much like spam email > goes out. Generally they go out after there is little if any risk that > the well will be a dry hole. There is indeed nothing illegal about > that. A lot of mineral owners have no real clue as to what the size > of their royalty checks might be until they actually have the > experience of seeing the first check. (I have been trying my best to > assist people who want help here in doing the calculations they need > to do to get at least some estimate this, by the way, and will > continue to do so.) These people quickly do some calculations based on > the per acre offer and the number of mineral acres they own and > conclude that they would receive a 5 or even 6 figure check right now > instead of still totally unknown monthly royalty checks. This is like > participating in the TV show "Deal or No Deal", North Dakota style. > > Further, these letters often end up in the hands of people who have > lived all their lives without much money, and elderly people nearing > the end of their lives, who are thinking that they may not have time > left on earth to enjoy a long series of monthly royalty payments, and > these people may have a real reason to want a big check right now > instead of a stream of monthly checks. > > The companies do their mailings based on the notion that MOST people > will not take them up because they will get several times more money > total if they collect the streamof monthly royalty payments, but a few > will take them up on the offer, and the few that do take them up on > the offer (cash now in exchange for a potentially long but also > potentially variable stream of cash from the royalty checks) make the > acquisition companies enough money to pay for the nextt round of > mailings (including return postage stamps) plus a whole lot more. > > I've been trying to figure out what the company mathematicians are > expecting in terms of a stream of revenue over time based on their > recent up front offers. I conclude that if you get any $3,000 per acre > offers, that is good reason to believe that their calculations have > been done for a hum-dinger of a still confidential well. > > This is starting to sound a little like a J.G. Wentworth commercial. > J.G.Wentworth buys annuities and structured settlements set up to make > long term payments in exchange for a lump sum now to the previous > owner too, and makes money because the up front cash offer is > substantially less than the discounted value of the payments over the > life of the annuity or structured settlement. (It's YOUR money, why > not use it (blow it all) now (...instead of taking the tiny monthly > payments until you are dead and then the relatives you don't even like > get to blow what's left instead?..sorry, they didn't actually say that > but surely hinted at it ). Then there are the people who get so much > satsfaction from living the high life today that they may not be much > concerned about what could happen at some point in the future. > > I have no problem with people who with eyes wide open and brains fully > operational choose to take the cash up front because they need or > would like the cash and would rather have the lump sum of cash now > instead of the long-term stream of payments. Where I do have problems > is when people sell mineral shares with their eyes less than wide > open, and end up cutting a deal that gives them very little total $ > relative to the $ stream of monthly payments they otherwise would have > almost definitely received. If the well hasn't been drilled yet and > there is a real risk associated with whether the well will be a good > producer or even a producer at all, the lump sum now may look quite > enticing. Of course, if any of that risk exists, the offer is not > going to be $3,000 an acre either. > > But the part that really bothers me and what seems to me to be a form > of a scam is that these companies now instead appear to be targetting > people with wells at least in the drilling and perhaps in the early > production stages but before the royalty checks come out, and without > any real knowledge about the still confidential well production or > even a crude (no pun intended) estimate of the royalty checks, some of > these people might nibble at an offer that within the space of a few > months they will surely regret. Of course, if you sell all the mineral > rights for a lump sum, you will not be receiving monthly royalty check > and you will probably not even know what you missed out on. > > David --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Bakken Shale Discussion" group. 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