How to Determine the Value of Oil and Gas Minerals on Your Property

How to Determine the Value of Oil and Gas Minerals on Your Property

Oil and gas minerals hold an immense value. While some owners of these minerals will jump at the chance to sell these minerals to the first buyer, others will want to know how to determine the value of oil and gas minerals for themselves. There are, however, many ways in which this is done.

Producing Minerals

Producing minerals will be those that are already producing a profit. If a mineral owner is currently drilling for oil and gas and are finding success, they will need to judge the value of their minerals based on their monthly income.

The typical value, in this case, is determined by multiplying your monthly income from the minerals times 36 – 72. This number will differ from one circumstance to another. However, the monthly income has to be an average of the last six months’ worth of income to be accepted. If only a small area of the land is being drilled and production is just beginning, the potential value of any persisting oil in other area will need to be factored into the equation.

Non-Producing Minerals

When minerals are found but are currently not being utilized, the valuation approach will be different. In this case, the valuation will be done differently.

  • Judging from other well: In some cases, if land is currently not being drilled, but there are other wells nearby producing minerals, this may be used as a valuation of the potential that your minerals will have.
  • 3-D seismic surveys: These surveys allow the landowner to look beneath the surface to see what potential minerals are present. This is typically done by investors to determine their overall risk of potential loses or profits.
  • Acreage potential: The potential of minerals and profitability grow with the amount of acreage available. Oftentimes, if no minerals are being produced, there will be a calculation of comparable mineral sites and a value given to each acre that is used to determine the value of the minerals.

Investors need to be able to make a sound investment when they purchase or lease mineral rights. The current price of oil and gas will play a big role in the overall value of the minerals. Furthermore, the amount of acreage that will be leased will also increase the value. The more acres with potential, the higher the valuation price will be based on the statistical basis of more acres providing a better chance for producing profitability.