Farm sales

[cowman]

Stopped in at one of the locals farm sale yesterday and it sure didn't seem like there was a lack of money, although I didn't stay to see the machinery sell.
The farmer was a fairly large hay producer and had just got to where he didn't want to work anymore. He is 67.
He rented the land (1700 acres) out at $65/acre to a grain farmer. Apparently the grain farmer intends to spray out the alphafa and direct seed into the sod.
One of my buddies asked me if I was interested he sure would rent me his land at $65/acre, and I told him no thanks, I'm not into paying to do more work! He also told me of another quarter that was in timothy where the hay renter had decided to let it go. He said the rent had been $80/acre and someone had actually stepped up to the plate and was renting it at the same price!...to grow grain on!
Now I'm not sure if these guys are so flush with cash that they can afford to pay $80/acre or even $65? I mean some of that Saskatchewan land at the recent big auction sold for less than this yearly rent! Something is kind of skewed here?

[SASKFARMER3]

Rent in East Sask this spring and South East is going for 10.00 or taxes or in lampman area the landlord is paying farmers 500 a quarter to rent the land just as long as it is worked.
Lampan looks like alberta OIL.
In our area no one has done any new rental agreements.
Do any of these grain farmers have oil wells or surface wells or gas wells etc on their land.

[cowman]

Saskfarmer: Not real sure of this particular renter as he comes from an area south of this farm aways. But That area is humming and has had an established oil field that came in right after Leduc...about 1950...so I would assume he probably has lots of oil revenue! That area was also just insane last summer with CBM gas exploration. Might explain his desire to spend his money? The story is he already farms 7000 acres...I don't know him personally.

[cowman]

Just thinking further on this: Sometimes I don't think people get a clear picture on just how much revenue can be generated by an oil and gas well? In the area I live in, every other section is freehold, or in other words someone other than the government holds the mineral rights?
A common oil well in this area would produce between 300-800 barrels a day. At $64/bl that means $19,200-$51,200 a day! The freehold owner is entitled to about 18% or $3456-$9,216/day...less their share of expenses!
A typical gas well would be one million cu ft. a day. At $7.50/k around $7500? Then take 18% and you get $1350/day? Now obviously those wells don't produce 365 days a year but a monthly income to the freeholder of $50,000 is not in anyway out of line! If you do it right you roll the whole thing into a numbered company and only pay 17% income tax...less your expenses of course! Which might include a new pickup to keep tabs on your property, meals/vacations out with consultants etc.!
In other words it can be very lucrative if you own the minerals! Compare that to the surface rights of $15,000 initial and $2700 yearly rent and it is pretty apparent who gets the money?

[SASKFARMER3]

Cow farmer I agree that if the guy has wells he needs a loss and his accountant is telling him to rent at the higher price he knows his loss needed in spring before he seeds. Its not for farming but for tax planning.
If you can go to leader post web site and read FARM AUCTION GENERATES 7.7 Million in Sales!
RB is trying to put a happy face on a sale that was just awful.
THe man spent 250,000 in his yard a year ago in two sheds and sold the sheds and yard for 135000 that a little loss.
Also on the Big bins he spent two years ago 1/2 a million on them and got 100 for them
Thats a loss of $500,000.00 on just these two pieces.
Oh yea RB did OK farmer just plain Dumb!

[cakadu]

That seems like an awful lot of freehold on the mineral rights. Having done conveyancing in this area for many years, I don't recall the titles being split like that i.e. the mineral rights separate from the title rights.

The money would run out when the well goes dry I presume, so sums like that wouldn't be in perpetuity nor would they be anywhere near as good when the price of oil is down.

[cowman]

Actually Linda 18% would be an average? Anywhere from 15% to 21% is pretty much in the ballpark? I've never met anyone who got less than 15%...17% seems to be the norm. I quoted 18% because that is what my family gets.
Mineral rights can get complicated but definitely are not tied to the land. On any particular piece of property there are oil rights, gas rights and coal rights. This is only on land that was owned by CPR...not homestead land(the Crown retained all mineral rights on homestead land). In other words every other section in a township of 36 sections is freehold...within 25 miles on either side of the CPR line...in our municipality Edmonton to Calgary?
Almost exclusively CPR retained the coal rights...as trains used coal then? Some oil rights they let go with the land and usually they let the gas rights go as it was basically useless at the time.
On top of CPRs 18 sections, Hudson Bay recieved a section(or maybe two in some areas) and one section was given for the public schools.
Up until about 1950 oil and gas rights were freely bought and sold. Somewhere in there restrictions were placed on free movement and you had to inherit them or in some cases they could be bought with the land? Peter Lougheed tried to confiscate private freehold property when he came into office but got his ass kicked in court and since then there is basically a free market once again in mineral rights.
Of course as people left farming they retained their mineral rights and today many of the mineral rights under a piece of land are owned by the descendants of the original owners.
In my own particular case I own a very diluted share(many descendants) of the original old farm as well as a share(six sisters) of the mineral rights my Dad got with the land he bought from the Veterans Administration. He had the good(?) fortune of getting shot up early in Germany so made it home and bought this land before they changed the policy of not letting the mineral rights go with the land for returning soldiers.

[cowman]

Oh and by the way Linda: Some of these wells have an incredibly long life...and some incredibly short! The heavy hitters that come in like gangbusters usually don't last long, but some of these "seepers" seem to go on forever! The neighbor has a producing well that was drilled in 1956! Interesting enough these coalbed wells are predicted to go for a minimum of 40 years! A typical coalbed well will produce around 200,000 cu ft a day, or approx. $1500/day in production. The upside of that is they are very cheap to drill, almost zero maitenance, production costs are very low due to the fact they are basically pure methane and don't require drying, and the fact one pipeline system can service several wells because they are so close together? So when you get 27 wells on a quarter section...you can see the income potential?