Do you have mineral rights and are considering selling them? If so and you are inexperienced with this type of business transaction, you may not know that there are factors that affect the valuation. It is also important to note that mineral valuation fluctuates. This means that you could receive an offer this year that is higher or lower than you might receive in future years. Some people mistakenly think that mineral rights will always appreciate in value, but this is not always the case. For example, it is possible that an offer of $8,000 per acre might be the same or lower five years from now depending on the demand for the type of mineral rights you own. The following are three things that could affect the value of your royalties and offers extended to you.
Size
If the mineral rights that you own are connected to a large resource, then you will likely be extended high bids from buyers. This is because the buyers can expect to make a considerable amount of money, which can make it sensible for them to offer high bids because they can expect a return on their investment. They will also know in advance that expensive measures such as drilling will be worth the effort and costs associated with extracting. Perhaps you own a large piece of property, but the portion that produces the resource may be small and have a low production volume. This means that your offer would likely be lower because of the amount of resource on the property. Keep in mind that it is possible to retain ownership of your land but relinquish the mineral rights.
Producing or Non-Producing
This comes down to whether the property you own is producing the natural resource that the buyer desires. One indicator that you have a property that is producing is whether or not there is currently any ongoing drilling and excavating projects that are extracting the resources. If you inherited the land, it is possible that this is something that may have been performed on the land in the past, and some of the resources may have been depleted. If neither of these applies, you may have non-producing land. This does not mean that you do not have precious resources on your property. There are non-producing properties that have the resources, and interested buyers have a desire to explore to determine what resources are on the property. Land that is actively producing will have a higher value because it is producing the resource sought in the present, but the value of a producing source may depreciate as the resource depletes.
Location
This involves determining the ease or complexity of accessing the natural resource. In a perfect scenario, buyers would get land that has plenty of resources that can be easily accessed through ground drilling.
Complicated geology can make it more difficult to easily tap into resources. For example, massive rock structures and underground water could make extraction attempts more difficult. This could negatively impact valuation because although the resources may exist, it may be several problems associated with accessing them and the costs to get to the resources could be astronomical. To learn more, contact a company like Appalachian Mineral Partners.
Share5 August 2016
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