Mineral Rights

[Richard Carlsen]

Well, I see what you are saying Richard, but after beating this up in an appraisal class, with about 40 Appraisers, the general consensus was if you say you are appraising a property Fee Simple, and there are not any owned mineral rights for instance, you are asking for trouble as it could be construed as misleading.

I don't think that is correct, regardless of how many of the 40 appraisers might disagree. In the market where I am referring to, the mineral rights on the vast majority of the properties is never a market consideration. We could not measure any difference in sales values for residential properties with or without mineral rights. And we checked this at least 2-3 times a year. Therefore, it really was a non-issue.

A short story: The first house I bought in the Gaylord area in '94' had the mineral rights but the owner was selling and retaining the rights. It was a house on two lots. In order to save some money, he had let the real estate broker draw the deed. About a year later, we got a check from the gas developer for our mineral rights. I called and told them that the previous owner reserved the rights. They said they saw the attempt to do so in the deed but that the wording in the deed had been done wrong and we now owned the mineral rights. We now get a check from them about every 6 months for about $60. So much for saving money.

 

[Rick Neighbors]

Differences

Well that goes to show you, things are different in different parts of the country!

A few of years ago, you could lease the mineral rights to land around here for $25 per acre, no problem.

When we leased our minerals, on our 40 acres, two years ago, they paid us $3,000 per acre. For the past year or so we have averaged apx $2,000 per month on 2 wells.

How could anyone say that has no value in an appraisal? Finding comps where the minerals have been sold is almost impossible....so far.

I appraised some ranch land. A few years ago, land in this area was selling for $850 per acre. This owner got $12,000 per acre. And he gave up his mineral rights to wells that were producing a little less than $9,000 per month! Of course he got around a million dollars for his old ranch site that was apx 80+ acres. Guess he figured how long it would take to make a million bucks at $9,000 per month. One in the hand so to speak.

So, maybe in a few years, when everything settles down, we will be like your area. But for now.........


Rick

 

[Richard Carlsen]

A few of years ago, you could lease the mineral rights to land around here for $25 per acre, no problem.

When we leased our minerals, on our 40 acres, two years ago, they paid us $3,000 per acre. For the past year or so we have averaged apx $2,000 per month on 2 wells.

How could anyone say that has no value in an appraisal?

You speak for your market; I speak for mine. They are different and thus should be treated differently.

Tis the way of appraising.

 

[Terrel L. Shields]

We could not measure any difference in sales values for residential properties with or without mineral rights.

It is difficult to extract mineral rights from a mere acre but you might not be seeing the mineral rights on some properties in the legal documents unless you have run title. The worst problem is to determine which parcels have minerals and which do not. And many will have some fraction of same. IF a shale play hits your area, you will have to consider them. Even on small tracts, some companies were paying $30,000 or more per acre for lease rights. Further, you still need to mention them otherwise, the unsuspecting owner / buyer might start suing everyone once they find out the mineral rights are missing. A huge number of suits around here involve minerals without clear title. Those royalty checks are put into suspense accounts then the owners have to fight over who gets what in court. I've turned down several assignments where the issue was being fought out in court just this past year.

 

[Restrain]

The mineral values really depends on whether there's a producing area or not. I've seen minerals being sold separately for not a lot per acre, less than $500, where there is not heavy production or no production.

My wife has routinely put in a "minerals" clause that states only surface rights are considered due to the typical separate ownership of mineral rights in Texas.

Now, you get over into East Texas where the coal and lignite are sold separately, and there are strip-mines, you can really get into a pile of snakes. The strip mines routinely will go right through homes and small communities, following the coal seams, and, other than requiring the surface to be restored, there's no recourse. Homes routinely are either moved or bulldozed.

 

[Pam Wyant]

Mineral rights and timber rare fickle things. I've often seen a farm bought up and then sold for more without the mineral rights than with them. Same with timber - some timber guy will buy the property, timber it, then sell it for more than he paid.

Another thing to consider is anticipated longevity. Around here, a well may produce $2000 for a couple of years and then drop off. We have two wells on land we own and they produce around $90 a month. My husband's aunt has a newer well that produced around $2000/mo for a year, then dropped off to around $1000/mo.

 

[Terrel L. Shields]

Around here, a well may produce $2000 for a couple of years and then drop off. We have two wells on land we own and they produce around $90 a month. My husband's aunt has a newer well that produced around $2000/mo for a year, then dropped off to around $1000/mo

Shale gas wells deplete quickly. The trick is that these companies are 'booking reserves' and until the well stops producing economically, then they drill another well in the drilling unit... Income is an Up/down/up/down thing and very difficult to predict.

 

[Stone]

I would enjoy taking your class someday, Terrel. Much of this discussion has limited impact where I work, but it is an interesting topic.

 

[Dutchman]

Being familiar only with the timber part being discussed here, it is common practice here in the Pacific Northwest to treat standing timber as a crop. (Here today , gone tomorrow) and if included in the sale to have it cruised and the value of the timber deducted from the market value of the property. Now fruit trees, grape vines, filbert trees are a different story.

 

[Tim Hicks (Texas)]

The mineral rights are so over-rated here unless the owner owns a significant amount of land it is ridiculous. It has little or no bearing on typical residential lots. I have seen it make no impact so many times it is hard gauge any impact. Especially since the pay-offs have come to a screeching halt. There are some pretty mad home owners that were holding out for the big pay off that never came. It seems the only time mineral rights need to be discussed is because the property owner wants them to have value. Everybody wants their land to be worth more than everybody else's.

Now, big tracts of land with several wells in the area are a different story.