How to Determine the Fair Market Value of Mineral Rights
Mineral rights are the subsurface property rights that entitle a person or group of people to explore, extract and produce oil, minerals, and gases from a piece of land. If you live in the United States, you may own a fee simple estate, which means you own both the surface and mineral rights of your land.
Property mineral rights can be bought or sold independently of the surface rights in many U.S. states where there are valuable resources below the Earth’s surface. If you are thinking of buying or selling mineral rights, it is important to understand how to estimate the fair market value of your mineral rights, and it is highly advised that you consult an expert.
How Do I Determine the Value of My Mineral Rights?
Mineral rights transactions are rarely publicized and unfortunately, there is no open marketplace in which you can quickly see the fair market value for your mineral rights. In order to determine the fair market value of your mineral rights, there is one important distinction that must be made. Are your mineral rights currently considered producing or non-producing?
Producing Mineral Rights Vs. Non-Producing Mineral Rights
If you are receiving oil or gas royalties each month from the minerals being extracted from a piece of land, then you own producing mineral rights.
If the land that you own the mineral rights for is not currently having minerals extracted from it, then you own non-producing mineral rights.
Calculating the Value of Producing Mineral Rights
If you own producing mineral rights, determining the fair market value of your mineral rights is fairly simple. You can conduct a cash flow analysis of the recent oil or gas royalties from the property to easily see how attractive it may be to potential investors. Other factors include the property size and the amount of geology explored or remaining. Because producing mineral rights can generate immediate cash flow for an investor, they are often valued higher than non-producing mineral rights.
Calculating the Value of Non-Producing Mineral Rights
Finding a fair market value for your non producing mineral rights is a bit more difficult than those currently being extracted from. In order to value your non-producing mineral rights, location is going to be the most important factor. If you are in an area in which neighboring properties have been known to produce valuable minerals, your mineral rights will be quite valuable. Otherwise, your property’s history, investment potential, and the current market value of your minerals will also be factored into the fair market value of non-producing mineral rights.
Ultimately, if you are considering buying or selling your mineral rights, determining the fair market value of both producing mineral rights and non producing mineral rights can be quite complicated. It is always best to consult an expert before making any decisions regarding the fair market value of your mineral rights.