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The Appraisal of Mineral Rights by Terrel Shields
AS OF JUNE 30, 2026 OUR OFFICE CLOSED AS WE RETIRED TO THE OLD FARM WHERE I WAS BORN AND RAISED. I APPRECIATE ALL MY PAST CUSTOMERS. HOWEVER, AT AGE 75 IT WAS TIME TO MOVE ON TO MY FINAL TIME ON EARTH. I INTEND TO CONTINUE PURSUING LOCAL HISTORY AND APPRAISAL TECHNIQUES IN WRITING.
Mineral Rights Valuation Mineral royalties are often valued for Estates, Litigation, and for taxation or taking purposes. Your CPA may value an income stream but the general rule is that those valuations are more than the market value for producing property and less than market value for non-producing (exploration) property. The reason is that production tends to decline with time therefore, royalty income is a declining income stream in most cases.Also, mineral appraisers with a geological background can make some judgments about the long-term potential of such royalty or mineral holdings. In the market of 2020 and beyond, the collapse of the oil industry will almost certainly result in renewed purchasing of oil from overseas. That and a weakening dollar will result in renewed demand for oil. Hang onto your minerals, if not for you, perhaps for the next generation. And manage them. Know what you have.
To properly do an oil and gas appraisal, the appraiser function is usually best separated from the estimating function. The estimating function sets up the parameters or forecast of the income stream by estimating the remaining reserves, known as the “decline curve”. That function is usually performed by a qualified reservoir engineer or geologist experienced in estimating probable production. The appraising function takes the estimate above and translates it into a traditional appraisal using the Income, Sales, and Cost approaches (actually the Cost Approach is rarely applicable.) |
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Select consulting jobs may be considered on a one time basis. Terrel Shields
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