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  #1  
Old 04-24-2011, 03:17 PM
Terrel L. Shields's Avatar
Terrel L. Shields Terrel L. Shields is online now
 
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Default FSA says Mineral Rights are worth $1

I really wonder sometimes...how do you value a mineral right in an active area where sales from $1000 - $5000 per net mineral acre are found in the deeds in the Oil & Gas book of the county (rarely a deed is filed in the regular deed book, usually it is filed in O & G) for FSA?

An appraiser told me that the FSA told them to value the mineral at $1. That is supposed to be the fee simple total of value with the mineral. If you are going to pull a number out of the air....why not let them value the property less the mineral right (a. k. a. - fee in surface)? Why put the appraiser in the position of well...lying. They really don't know the value and FSA is telling them it is a $1?

I don't have a good feeling about this at all. FSA must think they are worth more than a $1 because they retain the mineral rights when they repo and resell a property and they would not sell 80 net acre back to a landowner in a county near me for any price although the gas potential there is very low.

Dear FSA...
Please sell me all those mineral rights you think are worth a dollar... I will give you $2 for every deed in Central Arkansas until I run out of money.
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Old 04-24-2011, 04:25 PM
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Quote:
Originally Posted by Terrel L. Shields View Post
I really wonder sometimes...how do you value a mineral right in an active area where sales from $1000 - $5000 per net mineral acre are found in the deeds in the Oil & Gas book of the county (rarely a deed is filed in the regular deed book, usually it is filed in O & G) for FSA?

An appraiser told me that the FSA told them to value the mineral at $1. That is supposed to be the fee simple total of value with the mineral. If you are going to pull a number out of the air....why not let them value the property less the mineral right (a. k. a. - fee in surface)? Why put the appraiser in the position of well...lying. They really don't know the value and FSA is telling them it is a $1?

I don't have a good feeling about this at all. FSA must think they are worth more than a $1 because they retain the mineral rights when they repo and resell a property and they would not sell 80 net acre back to a landowner in a county near me for any price although the gas potential there is very low.

Dear FSA...
Please sell me all those mineral rights you think are worth a dollar... I will give you $2 for every deed in Central Arkansas until I run out of money.

Terrel ... I think I would call FSA and ask if you can speak to the State Director who can then provide you with names of the appraiser and the loan specialists who should be able to support their conclusions.

I wonder if they have ever sold any of those mineral rights? A Freedom of Information request should get you that information as well. It has to be in writing but I would think they would have to provide the data to you.
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  #3  
Old 04-24-2011, 09:52 PM
stefan olafson stefan olafson is offline
 
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I think you are dead on Terril, FSA keeps the mineral acres when they foreclose and resell. I've heard of that in North Dakota, also Farm Credit/Federal Land Bank owns a pile of mineral acres that they retained when foreclosing on land in the past.
  #4  
Old 04-25-2011, 09:43 AM
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Terrel L. Shields Terrel L. Shields is online now
 
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PE - I know the name of the appraiser and the reason he called is that he is being directed by FSA to value the mineral at $1 and he's wondering how to comply and stay within USPAP. The answer I gave him is I don't know...I do know the FSA reviewer in this area does not agree with that directive. I suppose FSA can claim the JE exception ???
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Old 04-25-2011, 04:44 PM
farmguy farmguy is offline
 
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Could be related to loosing cliam on minerals in the past during foreclosure. During the bust of the 80's when the then FmHA (ag part since went to FSA) would foreclose there were times when they would lose their claim on minerals. Issue was that to make it easy and cheap appraisers often just appraised the surface even when the lein covered the minerals as well, (if surface value would support loan descision). They intended to take lein on minerals, but may not go to trouble to value. If government ignored minerals too many times sympathetic judges would say government had no claim. So FSA started appraising "minimal", "some", "partial" etc. The dollar amount got kicked around some. The intent is to make it painfully obvious that FSA has a claim on minerals if they foreclose. All that said I don't think the Texas folks ever asked for a $1 value estimate. Maybe "at least" a dollar.
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Old 04-25-2011, 06:34 PM
Burney Lightle Burney Lightle is offline
 
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Terrill and I are both located in Arkansas in the heart of the Fayetteville Shale Play…when it started, a few years ago, it was like the “wild west” with sales prices jumping all over the place…at that time, the Farm Credit office, that worked this area, decided to have their staff appraisers appraise the “surface rights” only…thus, excluding mineral interests altogether…I don’t know what property rights they mortgaged, but the LTV was based on what they called “surface rights” in the appraisal…

Well, that brought up another question; what about all of the other rights or interests associated with fee simple estate…i.e. air rights, right to drill for water, etc…what happens to those when you only appraise the “surface rights”? I contend fee simple surface rights us just that, surface rights… At this point, USFWS got into the debate because they are acquiring land in the Shale Play area…after a lot of debate, we decided to call it “Fee Simple Estate Exclusive of Mineral Interests”…

I think the appraiser you are talking with should be careful with that $1 deal…a better approach might be to exclude mineral interest altogether (see above)…or, turn down the job…
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Old 04-25-2011, 06:47 PM
farmguy farmguy is offline
 
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Burney I agree with all you said. But in the examples I was aware of FSA had a lein on everything. There were instances where over the years and many appraisals if they did not specifically address them some courts would say you don't have a lein on minerals because you did not specifically address them.
My guess is they are trying to ensure they keep the lein position. They do not really think minerals are worth a $1. I'm not saying it is wise to value at a $1 and I really can't imagine them specifically asking some one to do that. I am saying they are trying to protect the lein.
  #8  
Old 04-25-2011, 07:08 PM
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Eventually, I'm sure mineral right values will be AVM'd just like everything else.
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Old 04-25-2011, 07:50 PM
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Quote:
Originally Posted by Terrel L. Shields View Post
PE - I know the name of the appraiser and the reason he called is that he is being directed by FSA to value the mineral at $1 and he's wondering how to comply and stay within USPAP. The answer I gave him is I don't know...I do know the FSA reviewer in this area does not agree with that directive. I suppose FSA can claim the JE exception ???

In my opinion, and I am not an attorney, FSA can only claim JE .. IF .. there is a law on the books that says minerals must be valued at $1 despite their market value ... other than that JE does not apply. A federal agency cannot just claim JE if there is not a law to support their directive.

My guess is like others, there probably is not a study that exists stating whether minerals exist on the site or not thus they are saying apply a minimal amount so that their mortgage lien coveres all possiblities .. it sounds to me like they dont really care what the value of the mineral rights are as long as they are recognized ... absent a study showing or estimating the minerals present I would guess this is their means of addressing the situation for regulatory purposes.

I would still bet there are sales of mineral rights on properties on which the presence or absence of minerals was also unknown. Those are the market reactions to mineral rights I think I would be searching for.
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  #10  
Old 04-25-2011, 09:20 PM
Terrel L. Shields's Avatar
Terrel L. Shields Terrel L. Shields is online now
 
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Default

Quote:
there probably is not a study that exists stating whether minerals exist on the site or not thus they are saying apply a minimal amount so that their mortgage lien coveres all possiblities .. it sounds to me like they dont really care what the value of the mineral rights are as long as they are recognized ...
to acknowledge they exist is one thing, but to set a value of $1 on all of them is another. Yes, I agree the JE is not appropriate but the FSA is putting appraisers on the spot by not allowing them to exclude the mineral right. A "fee in surface" or similar description should apply when you are identifying the rights appraised.

Frankly, for mineral rights in areas without production, sales are the most appropriate method of valuing them. As for whether there are mineral (economic) or not, value does not relate to whether they are or not...rather the anticipation of value. Deeds are filed in the Oil & Gas books and found in each county. They are supposed to have deed stamps on them and lacking other information, i would rather aver a value based on deeded sales of mineral rights or from using property where the fee simple is intact.

Right now, I am betting that it is hard to extract the mineral contribution in sales in the farmland country east of Searcy because high crop prices have driven prices up here, and I bet are driving prices now... 10 years ago, lots of that country was hard to sell for much over $1000 an acre. And, yes, merely identifying whether or not the mineral is intact is difficult.

Early in the play I saw a lot of property exchanged for up to $900/ac. plus in Woodruff Co. and other E. Arkansas counties where no Fayetteville shale has produced to date. Those exchanges were based on anticipation. And the area isn't dead completely yet but clearly the results changed those expectations dramatically. There have been shows of gas in a number of wells from the 1910's and beyond. In fact, there is an island in the middle of the Mississippi R. that is famous for a gas well from the 1920's. The mystery of its source is unknown but it was found in shallow sands on the island which has changed so much that the well is out in the river now and some claim to still be able to see the bubbles. attached is a snippet from an old report out of Tennessee.

BTW, Dwight Brown (past pres. of the state board and our NARO-Arkansas President) & I will be in Searcy later this summer with the NARO (natl assoc. of Royalty owners) and I will be giving a talk on mineral valuation and hopefully, we can get a NARO CMM to come teach a class towards the CMM (certified mineral managers) course. I have toyed with the idea of finding a sponsor to hold a Mineral appraising course on the days before or after the NARO meeting.

next week I give deposition over mineral rights when I turned down an assignment where the client (a title re-insurer) wanted me to value "oil-gas" rights but neglected to point out that the value lay in the buyer purchasing it for a rock quarry after being assured that it had all mineral rights, and after the buyer had drilled test holes and estimated the reserves of rock.

Another interesting sidelight on "minerals" is that the "fraccing" that is so much in the news uses sand as a proppant to keep the fractures from closing back. They are looking for good quarry sands which are uniform in size and are 'clean' sands. I had a call about appraising just such a quarry site recently.
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Last edited by Terrel L. Shields : 02-11-2012 at 10:29 AM.
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