What Are My Minerals Worth?
Posted July 17, 2019
You may have noticed a lot of oil and natural gas development taking place in your area over the past several years. Maybe you’ve already leased your mineral rights to an energy company. Maybe you haven’t taken that step yet. Either way, you’ve probably received letters in the mail from companies inquiring about purchasing your mineral rights or royalties. If you’re considering selling, the big question on your mind is: What are my minerals worth?
Before you can answer that question, you first need to answer another question: Do you own the mineral rights to your property? The answer to this question may not be as obvious as it initially seems. Just because you own a piece of land does not necessarily mean you own what’s underneath it. In fact, in many cases today, mineral rights have been separated from parcels of land and are owned by someone other than the landowner.
Once it’s determined you do indeed own the rights to the minerals on your property, you can begin to evaluate how much your minerals are worth. Unfortunately, there’s no simple formula for determining the absolute value of your minerals. Instead, the value of your minerals is based on a few different factors.
4 Key Factors for Determining the Value of Your Minerals
When seeking to determine the value of your mineral rights or royalties, four variables have the biggest impact on how much your minerals are worth.
The first factor in determining the value of your mineral rights or royalties is the oil and natural gas infrastructure in place in your area. “Infrastructure” simply means “the fundamental requirements for oil and gas development.” Is there active development currently taking place in your county? Do energy companies have staff and equipment on the ground in your community dedicated to the exploration and development of oil and natural gas? Have permits been issued? Are well pads already built or being built? Is drilling taking place?
Probably the most important question when it comes to infrastructure is, “Are there pipelines set up in the area?” The lack of pipelines to move natural gas from drilled and completed wells to processing facilities (where the gas is then “cleaned” and prepared for the market) is one of the biggest pieces of infrastructure currently holding up development in Ohio. Even if there is natural gas in your area, energy companies need to have the ability to efficiently move the gas from point A to point B to make it worth the investment to initiate development in the area.
The reality is that it’s easier and more cost-effective for energy companies to develop areas where pipelines are already established than it is for them to start fresh somewhere new. That means development is more likely to happen in areas with established infrastructure. Therefore, if there’s active development in your area, the value of your minerals is going to be higher than it would be if no active development was taking place.
The second most important factor in determining the value of your minerals is whether you’ve signed a lease with an operator. If you are in a good location, there’s a good chance an energy company has reached out to you about leasing your mineral rights. Whether or not development or drilling has started on your property, the provisions of your lease impact the value of your minerals.
For example, within the provisions of the lease, what was the bonus consideration? Do you have a higher royalty percentage? These are just a couple of important questions to be considered when comparing the lease to a one-time, up-front purchase valuation of your royalties and/or minerals. Obviously the greater the percentage of royalties you have on your lease, the greater the one-time, up-front purchase offer is going to be.
As in real estate, where property value is often heavily determined by the mantra “location, location, location”, an important factor that influences the value of your minerals is where your property is located. Specifically, the value of your minerals is determined by your location in the shale basin or “play”. If your property has a good position in the shale play, where there is a lot of drilling activity, that’s going to increase the value of your minerals. On the other hand, if there’s absolutely no activity around you, that’s going to decrease the value of your minerals.
4. Oil & Gas Market Prices
Like any market, prices for oil and natural gas fluctuate based on supply and demand. When supply is low or demand is high, prices go up. When supply is high or demand is low, prices go down. There are various factors that can impact oil and natural gas market prices, including weather, politics, pipeline issues, and natural disasters.
For example, natural gas prices are currently depressed. This is mainly because supply is high after a winter that wasn’t extremely cold. Also, there have been mostly mild temperatures so far this summer.
When you are offered a purchase price for your minerals, the current market prices of oil and natural gas will be used as a baseline, meaning the market prices will have an impact on the estimated value of your minerals.
Interested in Learning the Value of Your Minerals?
While the four factors above aren’t the only factors that go into determining the dollar value of your minerals, they are the most significant ones. If you are considering selling your mineral rights or royalties, and you talk with a company like Gateway Royalty, these are the factors that will hold the greatest weight.
Do you live in the Ohio Valley and want to find out how much your mineral rights or royalties are worth?
Reach out to Gateway Royalty today and we’ll prepare a quote for you.