Last Updated on When it comes to oil and gas in the United States, Texas is the most significant state. The lone-star state produces more oil and gas than any other state in the country and has been doing so for a long time. Mineral rights ownership has been divided among relatives of families with oil in the state over the past decades. Many owners of these mineral holdings are often curious about how to get the best value when selling mineral rights in Texas.
However, before diving into how to estimate the mineral rights value, you should acquaint yourself with the market and understand the factors that determine the demand for oil and gas.
As economic activity increases, the need for oil and gas increases accordingly. As a result, oil and natural gas prices rise, increasing the value of related mineral rights. Rising prices for oil and gas give mineral owners renewed optimism. One of the most significant challenges many mineral owners face as part of the selling process is getting the right information. Knowing the fair market value of their holdings if they receive a few offers from mineral buyers is essential.
This comprehensive guide will provide insight into what can influence the value of mineral rights in Texas. You will also learn how the entire process of buying/selling mineral rights can be done for maximum value. This is essential for anyone selling minerals rights and for mineral buyers too. So, don’t stop reading!
What is the average price per acre for mineral rights in Texas?
The average price per acre for mineral rights varies from one state to another. In many other states, the value per acre is between $100 and $5,000.
As a rule of thumb, the average price per acre for non-producing Texas mineral rights ranges from $0 to $250 per acre.
What influences the price of mineral rights in Texas?
The value is dictated by many factors. As an owner who wishes to get the best value for their rights, you must know the different things that may influence the price of your rights in the state of Texas. Some of these are introduced as follows:
Location
As with real estate properties, location is a critical factor that must be considered when estimating mineral rights value. Generally, minerals located in the hottest regions often have more value than others in older fields with conventional wells.
Producing or non-producing minerals
The value of rights can also be impacted by the type of minerals in question. Generally, those producing have more value than those not producing. After all, the former generates revenue.
Oil and Gas Prices
The prices of oil and gas are determined by the demand for them. Revenue drops when oil and gas experience a price drop. As operators find it hard to proceed with their operations, the value of the mineral rights reduces. On the other hand, higher prices for oil and gas can raise the value of mineral rights.
Well Production
This is another crucial factor affecting mineral rights value. A productive well will increase the value of the minerals. As a result, your mineral rights value in Texas also rises.
Lease Terms
The terms of any oil and gas leases can also determine the value of your mineral rights. There may be a chance to drill additional wells to optimize initial production.
Operator
This is a factor that many owners of mineral rights with property leased to operators in Texas tend to ignore, yet it affects their rights valuation. Some operators are not ethical in their financial dealings. When you get involved with leasing to such operators, your reputation may be affected, which reduces the value of your mineral interests.
How to estimate the value of mineral rights?
Assessing the value of mineral rights in Texas can be challenging – but not impossible. Knowing how mineral rights in Texas value estimates are calculated is extremely helpful in attracting an offer for your mineral rights at a higher price.
The first step to estimating the value is understanding the type of property ownership. The method used to estimate the value depends on the status of your property. This is explained in the section below.
Producing
This kind of mineral right ensures that you can receive a decent average monthly royalty check. An easy way to estimate the worth of such a mineral right is to use the cash flow it produces. Your mineral rights value in Texas can be estimated by using the monthly royalty income you receive. However, this is not always the case.
Generally, a mineral owner can expect to sell their mineral rights in the state for 4 to 6 years multiplied by the average monthly income. Yet, it should be stressed that several factors can cause either a positive or negative change in the price of the property. Producing oil and gas royalties in Texas can be worth significantly more and appeal to mineral rights buyers.
If you wish to figure out the value of your mineral rights in Texas, you can go through the previous three months of check stubs. Then you can calculate the average monthly income over that quarter.
Non-producing
Mineral rights that are not producing or leased often come with little or no value; typically, valued at $1,000 per acre or less. In Texas, the mineral rights value often falls within the range of $0 to $250. However, producing minerals can be priced as high as $25,000 per acre if they generate revenue.
Non-producing mineral rights have a much lower value, as they offer no immediate return on investment. So holders of such rights can be stuck holding them for a long time.
Leased
As an owner, you can sign an oil and gas lease agreement. This makes it possible for an operator to identify your land as a potential area where drilling new wells are feasible. The land has potential future value for operators even though there are no assurances that a new well will be drilled there.
In many cases, mineral rights are leased for a long time without the possibility of drilling on the land. This often impacts the future value of such mineral rights. When you wish to sell mineral rights without any production royalty value or royalty income, often, the value is two or three times the last lease bonus.
Example: a mineral rights owner who receives $5,000 per acre to lease their mineral rights without receiving royalty income might sell the rights for $10,000 to $15,000 per acre.
Mistakes to avoid
Whenever you wish to estimate the value of your mineral right, there are some mistakes you must avoid:
Never fail to compare discount rates: Subjectivity is essential in asset valuation, including mineral rights. Regardless of how close two minerals are – in terms of location and characteristics – they may have different valuations. As a result, before you arrive at a conclusive value, you must ensure that the discount rates are compared. When the discount rate is high, mineral rights have an increased risk.
Never rely heavily on historical data: After all, various factors can influence the value of mineral rights. While historical price data can be used for making price forecasts, they are no guarantee for actual movement in the value of mineral rights.
Furthermore, you could miscalculate the royalty interest in fracturing and horizontal drilling. In addition, another common mistake numerous mineral owners make is failing to separate net royalty interest and net mineral interest. Generally, the net mineral acreage represents a fraction of the gross acreage covered by a lease. To obtain the net royalty interest, you must multiply this by 8.
Where to get a valuation of your mineral rights in Texas?
Even though estimating the value of your Texas mineral rights is not an easy task, you can get good results when you consult the right experts, such as Pheasant Energy.
Pheasant Energy focuses on the royalty, working, and mineral interest subset of the industry. The company has a team specializing in the analysis of opportunities, renowned for promoting fast transactions, which is better than other entities in the industry.
Besides the company’s growth, Pheasant Energy keeps expanding on legacy assets. This company also uses an effective approach to acquiring multiple basins across the United States.
Conclusion
Minerals are valuable resources that have shaped civilization. As a result, having the right to explore and use these resources on a specific parcel of land can be very valuable. There is critical information you must not ignore before carrying out your mineral rights valuation.
Besides this, there are also common mistakes – as mentioned above – which you must avoid whenever you wish to estimate mineral rights value.
Pheasant Energy is an excellent company to contact for a free consultation regarding an accurate valuation for your mineral rights in Texas.
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