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Value of Mineral Rights

 

Calculating mineral rights value is very hard and can be inconsistent.  Many variables come into play when considering how to assess and value mineral rights. The value of mineral rights depends on some elements that are reasonably determinable, but become complicated when combined with other elements which seem to fluctuate with the wind.

Five dollars an acre, or twenty five thousand dollars an acre? 1/8 royalty, or 1/4 royalty? These are real life (and recent) terms negotiated in oil and gas leases. Let’s look a little deeper at calculating the value of mineral rights.

Mineral Rights Value Varies By Location

The location of your minerals affects the value of your mineral rights because of the different geology (underground structures).  Various characteristics of the underground geology dictate whether or not hydrocarbons exists and to what extent.  The closer you are to a known hydrocarbon accumulation, the higher your mineral rights value will be.

Producing Mineral Rights

Minerals which are under production and producing monthly revenue are going to have substantially more value than non producing minerals. The flow rate at which the oil or gas production is producing is the primary determinant of the mineral rights value, combined with the current oil or gas price. The known presence or likelihood of additional unexplored areas will also influence value. The presence of production is a major influence on how mineral rights are valued.

Non Producing Mineral Rights

Non producing minerals are those that have no current cash flow associated with them. It stands to reason that the value of non producing minerals is less than minerals which are producing cash. In effect, non producing minerals represent as an option that oil & gas will be discovered and produced in the future.

Size Increases Value

The volume of what you have to offer for sale or lease in the marketplace influences its value. From the perspective of an oil company who is leasing mineral rights, the company would rather lease larger tracts than smaller ones. For the same amount of work they acquire more acreage. It’s a whole lot cheaper to organize a drilling play when you’re working with a handful of lessors with 100 to 1000 acre tracts than with those owning 1 – 10 acre tracts.

Oil and Gas Prices

Embedded within any treatment of the question “how to value mineral rights” will be an assumption of oil and gas commodity prices. These fluctuate daily in the marketplace along with all other commodities. U.S. energy commodities are priced continually on the New York Mercantile Exchange (NYMEX).

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