Partners,                                            updated January 18, 2018

RE: offer for Culberson County Mineral Interests in Dec 2017

I. Here are some facts that I am using to make my decision.
         (M=Thousand and MM=million so $1M is short for $1,000)

  1. Mother is not selling her identical interests which means
    1. if the revenues increase dramatically, at least the family will continue to benefit
  2. I spoke with ConocoPhillips, the operators of the wells on our interests, and they are struggling with reduced oil prices and have no plans to invest in further well development at this time. Of course that can change. Also someone else could decide to develop on our properties. (click here for my more detailed analysis of future value)
  3. We have an interest in Reeves County that is very close to these properties we are considering selling. We received a lease bonus about a year ago and they have three years to drill. To me this means we are still in the game in this shale play.
  4. If you look at the CP Sept page you will see our revenue has dropped over time: from almost $12M/month in Nov 2016 to less than $5M/month recently. In November 2017, last month, we received $6,500, Dec 2017 = $7000, a welcome and unexpected increase.
    • (1) Total from ConocoPhillips was 2017=$81M, 2016=$76M. 
    • (2) $81m revenue on a $1mm asset is $8.1% / year.
    • (3) If you assume our monthly rev is $10M then $1MM represents 8.3 years of revenue. Obviously, if the monthly revenue is less, then the years of revenue (needed to equal the total of this offer, $1MM) is more. (Divide $1MM by monthly revenue to get months. Divide again by 12 to get years). 
  5. Taking into account the time value of money also increases the years of revenue needed to equal the same money today. ($10M eight years from now is worth much less than $10M today. (About $2M less assuming a 3% inflation rate))
  6. There will be Long Term Capital Gains passed through to each partner. The rate will be 15% unless you make more than $470700 as a couple in which case the rate will be 20%.
  7. We received other offers, 2 so far, for the same interests that were lower by $100Ms.

II. Please contact me in whatever medium works best for you to talk about this opportunity.

  1. This Culberson County mineral interest represents the bulk, 90%, of our revenue. Revenues from all our other properties totals about $1000/month. So, if we take this offer we get this one lump sum instead of revenue over the years.
  2. Hopefully another property, like the Reeves County interest (see: I.3.) will be developed resulting in more revenue.
  3. I’m not planning to take 10% of the sale as per the Manager Bonus Agreement. What I’d like to do is receive $18M over the next 3 years. I’d like to change the manager bonus structure to be the greater of $500 or $10% of revenue for the next 3 years, 2018-2020. 

Please discuss with your spouses, each other, mom, John, financial advisors or others (with some discretion).

I’m sure you will all agree, “Thanks Joe and Gene for these amazing gifts and opportunities.”

Love you all. Very excited about the process of working with each other to make a decision.