Purchasing mineral rights is a great investment option as it allows investors to earn windfall returns on their investment. The returns on the oil and gas investment can amount to as much as 12% – 30%. And what’s more is that you can easily sell your mineral rights for a profit without much of a problem.
When purchasing mineral rights, you must know about the value of the property. Determining value of the mineral property is not an easy task. Various factors affect the value of the property. Moreover, some of the factors are standard while others are dynamic, increasing complexity of estimating mineral property value.
That being said, knowing about the factors that determine mineral property value will help you when you purchase the mineral rights. It will give you a general idea about whether you are paying the right price for the property.
1. Untapped Oil Reserves
The geographical location of the mineral property plays an important role in determining its value. The greater the untapped fuel oil reserves, the higher the value of the asset. For example, mineral rights in regions like Marcellus Shale, Niobrara Shale, Haynesville Shale, and Eagle Ford Shale have great amount of untapped oil and gas reserves. Properties located in these areas have greater value as compared to other regions.
2. Drilling on Surrounding Lands
Active drilling on surrounding lands can also affect the price of the property. If the mineral property is located in close proximity hydrocarbon accumulation, the price property value will be high. But remember, if the drilling results are negative, it will have an adverse impact on the mineral property value.
3. Oil Well Depth Constraints
Oil well depth constraints also affect mineral rights value. If the depth of the oil well is less, the mineral right property value will be low. On the other hand, oil wells with greater depth influence mineral property values positively.
4. Production Life and Rates
All wells do not have the same production life. Some oil wells have greater production life compared to others. Moreover, the production rates decline with time. As the wells age, they typically produce less oil and gas. That’s why a well with longer production life and higher production rates are valued more as compared to other oil wells.
5. Price of the Oil and Gas
The price of oil and gas determines whether the well will be profitable for the producer. Low energy prices means less profit for the producer. Similarly, high price means greater profit for the producer. As a result, the value of the mineral right will also be higher.
Note that the above list is not exhaustive. Many other factors influence mineral property values. But the above are the key factors that determine value of the mineral rights. Knowing about the factors that influence mineral rights property values will help you in appraising value of the oil and gas investment.
