Mineral rights value rule of thumb

Mineral rights value rule of thumb

Every mineral owner wishes they could figure out what their minerals are worth at any given time. It is pretty easy to do that with Real Estate because most of those transactions become public, and enable Central Appraisal Districts (in Texas) to appraise the land for county taxing purposes. On the other hand, most mineral and royalty transactions are not reported publicly; therefore, there is no ability to research the values of nearby mineral and royalty transactions. And, the extensive list of variable factors that influence the value of a mineral or royalty tract cannot be covered here. However, there is a little bit of rule of thumb guidance that might help you determine your mineral rights’ value.

Non-Producing Mineral Rights Value

If your property has been leased in the last few years, but is not producing, nor is there drilling activity nearby, then a rule of thumb used for mineral rights value is 2-3 times the most recent lease bonus. For example, if you leased your property for $100 per acre, a buyer might offer you $200-300 to buy your interest. The buyer is gambling that they will have the opportunity to lease the property in the future and regain their investment through future lease bonus payments, and possibly through production royalty payments.

Producing Mineral Rights Value

If your property is under a lease with a producing well, or is unitized with a well or wells, but there is no longer any future drilling activity planned for your property, then your monthly royalty check can be used to estimate the value of your property. The range of value most buyers will attribute to a producing property usually fall within 2.5 and 5 years of future production, or 30 months to 60 months of future production. If the well or wells are declining quickly, a buyer is going to offer a lower multiple of production, ie. 24-36 months of future production. So a property making $100/month would be worth $2,400 to $3,600, for example. If the current wells are on a slow decline, a buyer may offer 48 to 60 months of future production, so the same $100/month royalty may bring an offer of $4,800 to $6,000. And if the wells have little to no decline, a buyer may go higher, and offer 70-80 months of future production since the wells seem capable of remaining steady producers.

 

In Conclusion

These are just ballpark rules of thumb for evaluating your mineral rights value, but they have stood the test of time. Contact us by email or call us at (214) 254-4808 if you would like us to evaluate or manage your mineral rights.



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