Mineral owners often rely on nearby sales prices, or buyer offers, as a measure of their mineral rights value. This puts mineral owners at a disadvantage. Sales records for similar parcels nearby can be helpful. However, relying only on this number to determine the value of mineral rights puts the mineral owner at risk. The fact is, mineral rights value and production potential can change greatly over just one mile. This is often due to geologic changes.
The following is a great example of how relying on nearby sales prices can be unfavorable when determining mineral rights value. Our team ran economic valuations for two mineral rights locations. The two 40-acre parcels are only one mile apart. The resulting Suggested Market Value, assuming a 20% royalty, is $170,000 for location one and $2,000 for location two. That is a $168,000 swing in just one mile!
Key Takeaways:
Relying solely on nearby sales prices or buyer offers to value mineral rights can disadvantage owners.
Mineral rights values can vary significantly over short distances due to geologic changes.
An example shows a $168,000 difference in suggested market value between two 40-acre parcels just one mile apart.
The variability is attributed to formations with different production potentials, such as Niobrara Shale and Codell Sandstone.
A formal mineral appraisal is recommended to accurately determine mineral rights value.
Utilizing a competitive marketplace, like LandGate, can help identify what different buyers are willing to pay.
LandGate provides free property reports and the option to list mineral rights for sale or lease on their marketplace.
The Analysis
The two undrilled parcels are located in section 17 and section 18, of a producing township, within the Denver- Julesburg basin.
The locations are shaded in the map below. The formations with proven production potential in the area are the Niobrara Shale and Codell Sandstone. There are multiple wells permitted in section 17. Permitted wells are represented by orange in the image below. Further west, into section 18, there are a few producing wells represented in green.
Here's an example of Colorado's Oil and Gas Conservation Commission's list of permits. This well information was generated using LandGate's software and is used to calculate the mineral value associated with the property. Moving north to sections 4 and 5, the producing and permitted well count decreases. This gradual decrease in upside and permitted wells, moving to the south-east, is a result of poorer geologic quality and reduced production potential.
Gross Forecast Results
Using LandGate's interactive map, a gross forecast was calculated. The report provides data for a "Net Cash Flow Summary" and a "Suggested Market Value."
How can I find the value of my mineral rights?
A formal mineral appraisal is generally advised to determine the true value of your minerals. LandGate provides mineral owners with free sale and lease estimates in our free property report. The best way to determine the true value of your minerals is to enter the asset into a competitive marketplace and see what different entities are willing to pay. After generating your free property report, you can list your mineral rights for sale or lease for free on our marketplace.
