Why Did My Offer Go Up?

“Oh, you know, we just like the area…”

If you own mineral rights, you probably have a good sense of what they’re worth. Or at least you know what others are willing to pay for them. Offers fluctuate from week to week, but sometimes they pop in a big way. When they do, owners are tempted. But a savvy owner might want to know “Why?”

Let’s find out.

New Permits

The most common reason an offer will spike is that new drilling permits are filed. Buyers should be upfront about this, but they aren’t always are. Thankfully, mineral owners can check for themselves.

Drilling permits are public records and can typically be found on the website of the oil and gas regulatory commission. In Texas, that’s the Railroad Commission, so we’ll use that as an example.

You can find new permits in a variety of ways, but the best way for a landowner is to check for new permits on the RRC GIS Veiwer. This is public map that shows all the permits and wells in Texas. To get started, open the viewer and find your property. You can do it the old fashioned way using the map, or narrow it down by county or even by RRC Lease Number.

Once you find your property, you can click on any permits/wells that intersect it for more information. From there, you can see the list of permits associated with that well (you’ll want to check the latest permit). From here, you can also access the W-1 for the permit, including the exact plat, spud date, completion date, etc.

In Texas, permits are almost always approved (though sometimes the operator needs to correct them). And the approval process takes at most a few days. Not every permit is actually drilled (and that can vary a lot by operator). But in general, if permits have been filed, that’s a good indication the operator is interested in your area.

Commodity Prices

Another common reason that an offer will go up is that commodity prices have gone up. For instance, when oil prices surged in 2022, offers went up along with them.

You can check commodity prices pretty easily. In general, you’ll want to check WTI (oil) and Henry Hub (gas). There will be regional differences and discounts, especially the further you are from Texas. But in general, these hubs prices will give an accurate real-time view of commodity prices in the United States. But be careful that you don’t look at international markets. Especially for natural gas, these prices are not reflective of what U.S.-based oil and gas will sell for.

Changed Assumptions

The last common reason offers will go up is a change in assumptions or expectations. This reason is the hardest to understand since Buyer’s typically don’t give a detailed explanation of their buying criteria. But broadly speaking, there are two basic assumptions that feed into an offer: Expected Production and Expected Timing. In other words, how much is a well expected to produce and when?

Expected Production

How much a well will ultimately produce is a tricky question to answer. But suffice it to say, when a new nearby well does come online, that will often change assumptions. If the well in the unit next door is a gusher, then suddenly the expected production of the minerals should go up. If the expected production goes up, the offer will (or at least, should) go up.

Unfortunately, there aren’t any easily accessed tools to help mineral owners understand production.

In certain states, operators report production on a well-by-well basis. So one strategy is to see what other, recent nearby wells have produced. But no two wells are exactly the same, so this strategy can be iffy… especially in areas with diverse geology. Another option is to ask a petroleum engineer or geologist, who can usually give you a much more informed answer.

That said, you can look up Texas production on the RRC. But in Texas, production for many oil wells is often grouped and reported together, making it difficult to understand what an individual well has produced (thankfully, gas wells are typically reported on a well-by-well basis). The formulas for backing out individual well allocations are very complicated and typically proprietary. The RRC production query might give you a useful ballpark, however. You can, for instance, check the production before the new well(s) came online and then check the production after. That should give you an idea of how much production is attributable to the new wells…

Expected Timing

A well that comes online tomorrow will be worth much more than a well that comes online in a decade. That’s because money today is worth more than money in ten years (and not just because of inflation!). What that means, practically, is that if a buyer has reason to believe that an area will be drilled sooner rather than later, the value of that area will go up.

Two things will generally influence timing expectations.

The first is public operator statements. For instance, if EOG tells its investors that it plans to complete ten tells in the Bakken, then that reveals something about their drilling plan and timing. Maybe it means the Bakken will be drilled up faster than expected! (There’s also the change that someone’s playing inside baseball with the operator to get, e.g., a drilling schedule. But based on our analysis, this does not seem to be common). This information is publically available in the form of investor presentations, etc., that will typically be available on the operator’s website if the operator is publicly traded.

The second is operator behavior. Even if an operator doesn’t announce its plans, sometimes they broadcast their plans by their behavior. If an operator is sweeping across a basin from east to west drilling all the open fairways, then it’s a pretty good bet that they’ll keep doing that. So that means nearby fairways can be expected to be drilled first. And therefore, the offer should go up.

The RRC GIS Veiwer can be helpful for this, if clunky. But unfortunately, it doesn’t include information like drilling rigs, spacing units, etc., that will shed light on what an operator is doing. Still, like the RRC production query, it can point you in the right direction.

The Bottom Line

If the offer on your minerals goes up, there’s a very good chance that something has changed. A buyer should be able to shoot you straight if there are permits. And chances are, you’ll know about commodity prices, so no surprises there.

The real sticky wicket is when the assumptions around expected production and expected timing change. Sometimes, it is just because someone looked more carefully at a basin and realized something new. Sometimes it’s a minor change in drilling that has a big overall impact. Sometimes it’s a hunch that someone feels good about. This sort of information isn’t always readily available to the acquisition personnel you’d be working with.

But it is at least asking “Why?” and then double-checking the answer.