To determine the value of an interest, we begin at looking at the specific reservoir. Since oil and gas are depleting resources, every reservoir of petroleum has a decline rate feature. Anthem determines the decline rate of the reservoir and from that information, we can determine how many months of reserves are probably left. The number of months of reserves are indirectly proportionate to the steepness of the decline curve. Every reservoir has its own unique characteristics, due to a vast array of reasons, whether geological or even what gathering techniques the operator uses, such as water or gas driven reserves. Once we have determined the volume and characteristics of the reserves, we begin to value the interest.
Value is then determined by current commodity price versus future pricing, appropriate discount rate and how we want to ‘risk back’ value, meaning the cost of capital versus some risk variable.
Simply put, reservoirs end up depleting (meaning that all royalty checks eventually cease with time). Royalty owners are in essence selling part of their reserves each month that they receive a check. Our acquiring your interest is just a matter of adding all your future check amounts, applying a fair discount rate to account for both interest and risk, and offering you that amount. Upon your receiving our offer, we are happy to go over all the variable factors included in our evaluation, including our discount rates and risk allocation, This open book policy is what differentiates us from any other buyer of oil and gas royalties that we are aware of in this industry.