Valuing Mineral Rights
Many mineral owners receive unsolicited offers to buy minerals located on their property. Mineral property generally includes hydrocarbons (oil, gas, coal), hardrock minerals (gold, silver, copper), and other kinds of minerals (bentonite, talc, uranium).
Individuals often have several questions in such circumstances. Namely, they want to know how much their mineral rights are worth in order to know if they are getting a good deal.
You should not hesitate to seek assistance with valuing your mineral rights. If you are interested in selling your mineral rights, you want to get the greatest possible value from it. The Mineral Auction can help you accurately value your mineral rights and sell them for the highest possible amount.
How to Value Mineral Rights
Unfortunately, the value of mineral rights is not as easily discernible as other types of property. Many resources online may try to use low precisions metrics like a mineral rights value rule of thumb or a net mineral acres calculator. They are no replacement for consulting with an expert who may have to tools, knowledge, and experience to accurately assess value in ways that are normal for the oil and gas industry. Whereas homeowners can easily look up the listings of similar houses being sold in their neighborhoods, there is no public database of information that tracks the going rates for mineral rights.
The value of mineral rights can be very complicated to determine. A number of different factors must be taken into consideration, including:
- Producing or Non-Producing Rights – One of the primary factors in the value of mineral rights is whether the rights are producing or non-producing. Producing rights have an active cash flow associated with them possibly in the form of oil and gas royalties and are more valuable than non-producing rights, which might not involve any activity for several years.
- Known Mineral Production – When there is known mineral production in an area, this will increase the value of the mineral rights. The likelihood of additional minerals bolsters the value of your mineral rights.
- Investment Potential – Lack of production is typical of non-producing mineral rights cases. Non-producing mineral rights are sold as investments of something possible in the future.
- Leased or Unleased – Non-producing mineral rights can be further complicated by either being leased or unleased. The difference in having a lease agreement may impact the ability to sell mineral rights.
- Location of the Property – Another important factor in determining the value of mineral rights is your actual location. In terms of mineral rights, location refers not so much to a city or state as the actual quality of the ground that a property is located on. In other words, property rich in a certain mineral is likely to be more valuable than property that is not. Similarly, property with a greater number of acres will be more valuable than property with fewer.
Determining mineral value rights is complex, and people should be especially cautious not to use any unreliable or unproven methods of calculation. One common mistake made by many people is basing their opinion on what they learned a neighbor sold mineral rights for and using that number to calculate some kind of average price. While the property next door would seem like a logical comparison for what a person should expect, several factors could dramatically increase or decrease your own value compared to your neighbor’s. For example, the difference in your leasing rates can make an enormous impact. Another common mistake is relying on outdated information. The market can change drastically from month to month, so using even slightly old information can be an error.
Factors That Go Into the Cost of Mineral Rights
Several factors will dictate the value of your mineral rights, including:
- Activity – As previously mentioned, your proximity to current production plays a major role in determining the value of your mineral rights. Increased activity in your area generally means increased mineral rights values.
- Basic geology of your property – Mineral deposits are not evenly distributed, and companies need to make complex assessments in order to determine the estimated recovery.
- Current market value – The market value of the minerals on your property. Commodities pricing will play a fairly important role in how the offer you receive will be calculated.
- Acreage-to-production – May play a role in larger property cases. Even when production is minimal, a person could command more simply by having more acres to offer.
- Temporary lease or outright sale – Another important determinant in the value of mineral rights is the type of agreement you will be signing. Are you signing a temporary lease or are you selling outright? Are you being paid a lump sum or will you be getting royalty checks?
You should make sure to educate yourself about the rights you will be selling. There are essentially four types of mineral ownership:
- Mineral Interest — The ownership of all rights to minerals at or below the surface of a tract of land.
- Royalty Interest — Mineral owner’s share of production, net of production, and transportation expenses, when minerals are produced on the property.
- Working Interest — Working interest dictates a mineral owner’s share of expenses, and can influence revenue considerations.
- Overriding Royalty Interest (ORRI) — An overriding interest is ownership of a portion of the revenue generated from the production from a mineral right. Unlike mineral and royalty interests, this expires when production is stopped.
The type of ownership can be very important in determining whether you want to sell your mineral rights. Each kind of ownership offers its own unique set of advantages. For example, a working interest can come with a much greater opportunity for financial gain but also carries a greater likelihood of financial loss. A royalty interest will involve no financial burden, but also provide no control over the production process.
Get Help Learning the Value of Your Mineral Rights Today
If you have been offered money or have been thinking of putting your mineral rights up for sale, you will want to know exactly how much your mineral rights are worth. The Mineral Auction has a network of more than 11,000 buyers so you will get the best price possible for your mineral rights.
Our experienced team of mineral rights brokers has been helping people all over the country since 2008. We can help you list your mineral rights in the most competitive market in order to help you get maximum value.
The fee that The Mineral Auction will charge you is directly tied to the value of your sale, so you can be assured that we will work to get you as much as possible. Call (512) 698-2802 or contact us online to get a free initial evaluation of your property.