Noble Royalties, Inc.

Transcription

1 Noble Royalties, Inc. Oil and Gas Acquisition is our Business Martin V. Fleming Texas Independent Producers and Royalty Owners Association February 27, 2008

2 Today s Objectives Introduction of Noble Royalties What are royalties worth? Today s royalty market How should you track and manage your royalties? Case study demonstrating relationship between decline and value Wealth management strategies for royalty owners

3 History of Noble Royalties Founded in 1997 Summary of assets acquired to date include: 190+ Acquisitions $805,000,000 total purchase price 127,124 + distinct royalty interests within producing wells Assets located in 30 states, GOM and Pacific Offshore Active staff of 72 energy & financial professionals (21 man A&D team) Corporate headquarters in Dallas, with decentralized A&D office in Houston

4 Noble s Professional Track Record

5 Energy Family Tree and Fractionalization Industry Focus RI # Owners Year Ranch, Oil 25.00% Titusville R,O 12.50% Son R,O,O 6.25% Grandson Spindletop O,O, RE 3.13% Ggrandson Son Hobbs O,O,RE,RE 1.56% GGgrandson Grandson Son O,O,RE,RE,Eq 0.78% GGGgrandson Ggrandson Grandson O,RE,RE,Eq,Eq 0.39% GGGGgrandson GGgrandson Ggrandson

6 How to Close the Buyer/Seller Gap Full Disclosure to Minimize Emotion Market Historical Comparables Auction / Broker / Noble Production Net Decline and Life Noble In-House / NSAI Pricing NYMEX Futures are Aggressive Current Cash-flow Seller / Accrual Vs Production Date Expectations vs. Actual Historical Closings

7 Value is Simple to Complex to Simple Value is dependent upon decline Value is dependent upon longevity Combination is generalized as a Geographic Area Investors need the yield to justify risk Investors need the yield to exceed fixed income alternatives Commodity prices in line with inflation over decades End of Day decline dictates estate planning End of Day decline dictates percent reallocated into appreciating alternatives

8 Variables Affecting Value Geographic Location Geographic Monthly Multiples X Cash Flow

9 Investors Push Back in 2006 and CF CF CF CF CF CF NPV NPV NPV NPV NPV NPV WI RI TTL Oil Price Avg. $22.82 $27.80 $38.08 $52.76 $63.62 $72.30 Gas Price Avg. $3.21 $5.26 $5.78 $7.51 $6.81 $7.18 Sources: Oil & Gas Clearing House, Energy Net, Noble Royalties, U. S. Energy Information Agency

10 Detailed Tracking of Comps Seller CHEVRON U. S. A., INC. CHEVRON U. S. A., INC. CHEVRON U. S. A., INC. Field TEXAS PANHANDLE-PANHANDLE MOORE COUNTY FIELD PEERY FIELD QUINUNO FIELD PARSELL FIELD County or Parish MOORE COUNTY, TEXAS OCHILTREE COUNTY, TEXAS ROBERTS COUNTY, TEXAS ROBERTS COUNTY, TEXAS OKLAHOMA & TEXAS OKLAHOMA & TEXAS OKLAHOMA & TEXAS OKLAHOMA & TEXAS State (PANHANDLE) (PANHANDLE) (PANHANDLE) (PANHANDLE) Lot No. LOT #6558 LOT #7267 LOT #8456 LOT #6526 Sale Well Count 3 4 Depth, (Feet) Remaining Life (yr) Noble Bid ($) Auction Sale or High Bid Price ($) $81,000 $250,000 $75,500 $86,000 Net Cash Flow ($/Month) Current Month Average Month $897 $3,245 $901 $1,293 Statistic for Year Months NCF Multiple - High Bid Months NCF Multiple - Seller Minimum SOLD SOLD SOLD SOLD Sold Months NCF Multiple High Bid Estimated PV, BFIT NO ECONOMICS NO ECONOMICS NO ECONOMICS NO ECONOMICS Sold Estimated PV, BFIT 0% Disc Value PDP Sale Date 3/17/ :30 A. M. 6/16/ :35 A. M. 10/13/2005 1:55 P. M. 3/10/ :15 A. M. Effective Date 4/1/05 7/1/05 10/1/05 4/1/05 Oil Properties Flow Rate Transaction Data Net BOEPD Transaction $/Net BOEPD Reserves in Ground Data

11 An Investor s Perspective on the Royalty Market Annual Yield Monthly Multiple

12 Variables Affecting Your Value Historical & Projected Decline Future Net Revenue (MM$) at Various Decline Rates 5% Decline Rate 10% Decline Rate 15% Decline Rate F N R (MM$) Discount Rate (%) Decline (%/Yr) PV 5% Monthly Multiple Discounted F N R (MM$) PV 10% Monthly Multiple PV 15% Monthly Multiple 5% Decline % Decline % Decline Assumptions: 5000 Wells Starting Cash Flow $150k/Month

13 Descending Concentration Risk Property Name Rank Discounted Net Value (M$) Percent of Total Value Cum. Percent Disc. Rate (%) Non-Disc. Cash (M$) SMEPA 29A PVPD % 6.45 % SMEPA 85 PVPD % % SMEPA 106 PVPD % % SMEPA 1 PVPD % % SMEPA 10 PVPD % % SMEPA 125 PVPD % % SMEPA 112 PVPD % % SMEPA 69 PVPD % % SMEPA 70 PVPD % % SMEPA 115 PVPD % % SMEPA 94 PVPD % % SMEPA 49 PVPD % % SMEPA 126 PVPD % % SMEPA 117 PVPD % % SMEPA 127 PVPD % % SMEPA 43A PVPD % % SMEPA 114 PVPD % % SMEPA 9 PVPD % % SMEPA 78 PVPD % % SMEPA 51 PVPD % %

14 How do You Maximize Value? Trailing 6 months check stubs saved Accrual and production revenue months Local and third party engineering Permits, down-spacing increases PUD Historical drilling activity per year Operator letters discussing future plans Operator Power-Point presentations Title opinions, title, division orders Ex A Well listing per API, IHS, RRC, OCD, payor ID Lease bonus record. Lease per county, per state Descending PV 7 value listing of all PDP Digital scanned files of all of the above Compass Royalty Management, LLC. offers all

15 Case Study of How Decline Affects Value Mr. and Mrs. Smith, both 55, have royalty income of $150,000.00/ month. Personal income tax rate of 35%, capital gains tax rate of 15%. Sell at 72 month multiple or $10.8 million equaling $8.98 after capital gains and recapture tax obligations. Proceeds of sale or royalties are reinvested in market for an 8% annual yield.

16 Royalties Declining at 5% SELL ALL $26,124, SELL HALF $26,417, HOLD ALL $26,711,241.12

17 Royalties Declining at 10% SELL ALL $26,124, SELL HALF $20,880, HOLD ALL $15,637,305.87

18 Royalties Declining at 15% SELL ALL $26,124, SELL HALF $18,588, HOLD ALL $11,053,328.62

19 High-Grading a Royalty Portfolio Family royalty owner with $160,407 in average monthly royalties on approximately 3,400 wells in CA, MS, NM, OK, TX. Noble analysis provided the following information: Decline Cash Flow PV 7 Value Percent of Cash Flow Percent of Value 0-5% 16,299 1,942, % 25.9% 5% - 10% 23,659 2,323, % 31.0% 10% - 15% 9, , % 8.9% 15% - 20% 111,004 2,570, % 34.2% Family chose to sell all assets that were declining by more than 10%. They sold 75% of the royalty cash flow while retaining 57% of the value.

20 Conclusions A portfolio allocated and diversified between oil and gas royalties and other asset classes is the best way to maximize a family s wealth. Market conditions, including historic pricing and acquisition multiples, are ripe for selling all or part of your oil and gas royalties. Rate of decline in your oil and gas royalty holdings dictates wealth management and estate planning strategies. You can trust the professionals at Noble Royalties to provide you with maximum value, professional service, discretion and timely closings.

21 Noble Royalties, Inc. Oil and Gas Acquisition is our Business Martin V. Fleming Texas Independent Producers and Royalty Owners Association February 27, 2008 Contact us: N. Dallas Pkwy Addison, TX