How do you value non participating royalty interest in a non producing prospect?

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How do you value non participating royalty interest in a non producing prospect?

Question answered by: Michael Hayes

There are many variables that factor into this question:

 

 

A) On a net mineral acre basis, I believe that to determine the worth or value, the standard equation would simply be to multiply the going rate for an acreage bonus (for signing a lease) by two or in some cases by three if the going rate for an acreage bonus happens to be greater than four or five hundred dollars an acre. For example, if you own five (5) mineral acres with an NPRI of fifty percent (50%) and the most recent lease offered a two-hundred dollar ($200) signing bonus per acre, then your NPRI could potentially sell for around a thousand dollars ($1,000 – $1,500).

B) The value can also be negotiated based on the history of production. If the land has been drained but has not maintained any kind of production for several years you may, again, find it difficult to get an offer higher than your expectations. Really, it’s worth what you’re being offered only if you’re familiar with the production on that land or on adjacent lands.

C) Further, a tract of mineral acreage that is without production which is accompanied by a few nearby dry holes is just flat out not going to be worth much. Therefore it may be worth it to just sit on that NPRI you have, and if you’re a buyer you can probably spend very minimally to acquire that interest, albeit a bit risky….as this industry is known to be.

D) In some instances a land owner can sell a portion of his property (assuming he owns 100% of the minerals) along with, let’s say, half the minerals. That land owner (and I’ve seen this many times) may choose to relinquish the executive rights to the minerals but reserve a percentage of the bonus. This would still constitute a non-participating royalty since that land owner takes no action in negotiating or signing a lease, but still receives a percentage of the signing bonus. This would certainly add value to an NPRI. This is not completely rare, but it would be safe to say that most NPRI’s acquired do not have this luxury attached…..still, that is one of the many reasons you may need a landman if you are uimg00031nfamiliar with the land and its history of title.

A little about, Cornelius Michael Hayes IV

I live in Corpus Christi, Tx and play golf as often as humanly possible when I’m not working. In fact, I just shot a hole in one on March 1st…and if you don’t believe me I’ll send you the article from our local newspaper. I love being near and dear to my family, spending time outside, going to church every week and I absolutely love this great state of Texas.

(Click on above pictures for contact information.)

One Response to “How do you value non participating royalty interest in a non producing prospect?”

  1. Bill Says:

    The value of mineral rights or royalty rights is the amount someone is willing to pay for them. No doubt, it’s difficult to put a number on most non-producing minerals.