Appraising Mineral Rights

[Rick Neighbors]

Anyone doing it?

Received an appraisal request for some land here in North Texas. Owner is buying the land with the mineral rights. Lender wants to know what the land is worth and how much value the mineral rights add to the land value.

So I started my research for some data to do a paired sales analysis. Guess what, most folks have decided to keep the mineral rights. Lots of land sales, a few, very few, may have a partial interest in the minerals being sold. Some are even being sold with "no drill" clauses in the deed restrictions.

See there is lots of gas wells being drilled here lately, and everyone has visions of being rich oil tycoons.....or gas tycoons. Funny, being a gas tycoon doesn't sound as good.?

Anyway, I'm looking for some input in this field. What say you?

Rick

 

[DB]

You need to PM Terrell Shields .....

 

[Rick Neighbors]

Ps.

Now the plot thickens!

Got a call, seller has backed out, even though he signed a contract. Buyer has hired an attorney to force him to sell. Real Estate Agent called and said that seller has chained gate shut and basically offered to shoot any trespassers.

So, as I do not relish being shot at, especially for an appraisal fee, I told them when they get it all worked out, give me a call. And also call the Sheriff for an escort for me.

Rick

PS - I already have a check for payment in full for an appraisal. Haven't cashed it yet though.

 

[Terrel L. Shields]

sounds like fun...almost as much fun as i had monday in the witness chair for 2½ hours. mineral rights. Our side took a hit...sure didn't take me lightly though...beat me to death.

In short, "Mineral rights" are part of fee simple. Exclude them and you are appriasing "Fee in surface", not Fee Simple title. Lots of people are appraising fee in surface and calling it fee simple. Mineral rights are "real property".
Find sales that have intact minerals. Paired sales. Find sales of larger tracts if that makes it easier to isolate. minerals sell well in partial interests (no discount needed) You just do paired sales. Now find out if anyone close is LEASING...if they are leasing, then that is "market rents". Do 2 things, apply that lease bonus times 3, and see how that matches your paired sales. SO leases are $250...mineral estate is $750 per mineral acre. Or DCF the lease-market lease not economic lease. Say $250 first year and $10/ac in the subsequent years to 5. Likely will be something less than 2, maybe about 2.
Go to court house and look in the index books. Texas is pretty good for both finding ML and MD - mineral lease mineral deed. Also ROYALTY deed. some will report the consideration and the legal...get a per Acre amount. So you have sales, paired sales, and income method of making an adjustment

 

[Rick Neighbors]

Appraising minerals

Terrell,

" In short, "Mineral rights" are part of fee simple. Exclude them and you are appriasing "Fee in surface", not Fee Simple title. Lots of people are appraising fee in surface and calling it fee simple. "

This sounds reasonable to me. Is this something that was pointed out during your time in court? Or is it what you have come to realize?

I have seen a bunch of appraisals around here that have a disclaimer that say something to the effect that:

" No consideration is given, in the report, for the contributory value of any of the following: personal property, mineral rights, standing timber, crops, or hay/grass production, if any."

If I plagerize that, with a note that the property is being appraised "Fee in Surface", think it would lower my chances of sitting on the witness stand?

I have been seriously trying to find sales to determine what mineral rights are actually worth, but there are so many variables, up front bonus money, royaltys, length of leases, size of gas lease pools, etc. Then you throw in how many folks may be in an estate that get to share the royalties, and that can further muddy the water, so to speak.

So, I personally think that it would be extremely difficult to nail down a particular value for minerals on land, but I know there has to be some way to do it. Your explanation seems plausible, but extremly labor intensive, and I doubt you could get anyone to pay you what that service would be worth.

What say you?

Rick

 

[Terrel L. Shields]

Sometime there are few shortcuts. Actually, check out www.landman.org. Petroleum Landmen have text books about the legal aspects of leasing. It is thru one of those that I learned a lot about the subject. Rural Appraisal manuals do have info, one is appended in the Appraisal of Rural Property. "From Lease to Release" by Leslie Moses is a 1980 manual for landmen. Ch. 4 and 5 have a lot of info.

You can also get a lot of insights from the Kansas Dpt of Revenue at www.ksrevenue.org and the Texas Tax commission site has info on mineral rights valuation by assessors...

I think a lot of people try to make it too difficult. You have to remember that you are appraising what is left in the ground. That which is produced is personal property..the right to get to that personal property is a hard concept to really grasp.

This is a long term education. Lawyers, Judges, appraisers...few outside the field really have a good handle on it. During periods of high energy prices however, mineral rights are "real" and need to be addressed.

 

[Restrain]

I've got a lease, and have received offers for the production. In essence, it's the net value of the yearly production capped at approx. 10%. Check out the sales in the Denton County area. I've seen land offered where there's not production with a $2K difference for mineral rights. You might also call XTO or Burlington Resources, both large producers in the area. Their landmen may be able to help.

 

[Carnivore]

Terrel

Fee in Surface. Thats good. Never have had that problem here in NC.

I thought most of the land in Texas sold in the past 100 years or so did not come with any mineral rights?

I know my ex-wife family homestead in the Texas Panhandle had all kinds of leases attached to it. Her family was one of the original settlers, the grandpa was raised in a sod house!

 

[Big ole Boy]

What about 5 acres?

I appraised 5 acres recently that had subsoil that is superlative to most areas that one typically comes across in North Central Florida .... could there potentially be sand and aggregate values on that 5 acres that far exceed surface rights?

 

[Rick Neighbors]

Dirt Value

Well, along those lines, a couple of years ago, when one of our old mares died, at age 33, we had a local contractor friend bury her. He dug a hole with a D9 Catapiller, kinda overkill, but it got the hole dug fast. He made a comment that we were sitting on a million dollars of "select fill". That is a type of soil that local builders use under the slabs that they pour. Combination of sand and clay.

Sure enough, right down the road, a guy sold his land off, 1 truck load at a time, for a couple of years. He is now quiet rich! And, he is charging folks to dump concrete, and fill dirt back on the property, to fill it back up. Then I guess he will cover it with topsoil, and everything will be peachy.

Fee simple obviously can mean a lot of different things. The ownership of the dirt has value, the ownership of the minerals also have value, of course there is the avigatory rights also. I mean, there is an abandoned grass runway next door to our land.

Where does one draw the line in appraising land?

Rick :icon_eyecrazy: