By March 28, 2015 Read More →

How Much are My Mineral Rights Worth

Unleased mineral rights

Unleased mineral rights are mineral rights without a legally binding contract known as an “Oil, Gas, and Mineral Lease.” To assure clarity, the property can have no active oil or gas production. The value of mineral rights can be estimated as present value of any future lease payments.

Oil companies (called operators or producers), target specific well sites to find oil and gas. Developing a particular area early is called a “wildcat”. Drilling is often exploratory and can represent significant downside risk to the operator. The present value of any future lease

payments in a wildcat often price low, because the operator is spending significant time and resources drilling in an unproven area. As operators have success, the present value of future lease payments increases, resulting in higher lease payments and higher mineral sales prices.
It is also important to analyze the surrounding area. How close is the nearest successful well? Are they coming closer or moving away? How successful (or unsuccessful) are the wells they are finding? Answering these questions will add a speculative value based on potential for future development. As with all investments, future potential is subjective, and each operator evaluates decisions differently. It is important to test your offers with many parties to ensure you get a fair market lease agreement with a reputable operator. What better way than listing your minerals nationwide on US Mineral Exchange?

Leased mineral rights awaiting production

Leased mineral rights have a legally binding oil and gas mineral lease agreement recorded with the county Recorder of Deeds. In this case, the operator has yet to drill or produce oil and gas from beneath the surface. Similar to unleased mineral rights, investors will look at neighboring production, current market trends, and the potential for future production to evaluate mineral rights. Investors will also evaluate new factors such as the company leasing the minerals and their history of success. As long as there is activity in the area from the current operator or others in close proximity, the investor has removed some of the risks associated with purchasing unleased mineral rights.

While the lease can expire without any oil and gas revenues generated, at the time of purchase, the operator (or Lessee) expects oil and gas production. Like unleased rights, the value can be estimated as the present value of future lease payments. The potential value for leased minerals, though, could possibly be higher than unleased minerals considering activity in the area and other factors.

Producing property

Actively producing properties are often valued using the present value of all future royalties from producing wells. This calculation will estimate future commodity prices, production decline rates, the potential for future drilling and remaining reserves, among other factors. Different oil and gas basins have different decline rates, activity levels, transportation rates, taxes, and pricing differentials, so there is not a one-shoe-fits-all approach to valuing royalty income. In most cases, though, you should expect a fair and reasonable offer for producing properties. Many of the risks, such as drilling a dry hole or other technical problems during the drilling and completion process have been removed.

Content by U.S. Mineral Exchange.

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