Looking for some advice on an issue I’ve encountered. I came on this site last year looking for help and suggestions on getting a value on my father’s mineral rights. As expected I received lots of advice and was able to select someone from the list of folks given. At that point I worked with them to get all the info and the estimate was between 250 and 700k. The company was paid for their work and then the next step was a Landman to sell the Mineral Rights. Now that I have everything ready to sell, the Landman spoke with the company that gave the original estimate and was told it’s now valued at 50k. I’m flabbergasted that these numbers changed so significantly in 5 months and feel deceived. Does anyone have a company that can give a 2nd opinion free of charge? I’ve already paid the original company and feel like they gave me a high number at first just to get paid. Help please.
Depending upon the timing of when you had your evaluation done, oil and gas prices were at a certain level. If you had a full bore estimation done, it may have had a life cycle of 50 years of production and was based upon the price decks used at the time of evaluation and the potential for new drilling-Hence a higher valuation if it was done last year. They usually do a standard engineering evaluation recognized by the SEC. So a technical evaluation.
Offers are a different strategy. Most offers by landmen or buyers are based upon a discounted cash value for only the current wells for 3-5 years of production. They do not usually offer for any future drilling as they plan to make a profit off of the purchase. And they would be using a more current price deck where gas prices are very low. They base their offers on the current competition and start low. Their time frame is shorter and their purpose is different.
Since your technical evaluation, gas prices have plummeted. (However, they are expected to rise again in 2025-26).
So you are looking at apples versus oranges in the dollars because the strategy and purpose of the evaluations are different, timing is different and prices are different.
As my attorney says, “fair market value is a willing and informed seller under no compulsion to buy agreeing on a price with a willing and informed buyer under no compulsion to buy.”
You may choose not to sell at this time while prices are low. Interest in your area may have changed for the time being. You can wait for a better timing in the future.
I am wondering what kind of valuation was done. To be given a range valuation of $250,000 to $700,000 does not seem like a mineral reserve appraisal by an engineering-type company as those give specific values for purposes such as loans and estate appraisals. You should have received a detailed written valuation report for all your minerals. Have you called the appraiser and gotten a written explanation from this company with an explanation of the drop to $50,000 or is this just a verbal comment to the landman that you have heard third hand?
I worked with an appraiser who was recommended on this site. After doing the research they gave the estimated value at between 250-700k. I have it in writing yes. I have asked them multiple times why there is a discrepancy as well as the Landman has also asked why and they haven’t responded to any emails or calls. I’m unsure what to do at this point.
What were the offers that you were getting a year ago when you started this process and since then for the minerals? Ive never heard of an engineer that gives that wide of an appraisal, did you ask the current buyer if you own the same net acreage that you gave the engineer? If you own less than you represented to the engineer or If whomever you hired, isnt an experienced oil and gas engineer then that could be the issue
Good engineers I have worked with over the years do give a range of estimates because they know that there are ranges on the input variables that they use for input values for their equations. They may also give a range based upon the Present Value range for the predicted production.
They type of appraisal is also important as to whether it was for probate or IRS purposes, which reservoirs they were evaluating-only current production or value of future production, etc. You have to ask the right questions regarding the range of values given.
This may be a bad business decision but I’m going to out myself on this one. The appraiser/engineer was me, but there wasn’t an appraisal done. Honestly, there wasn’t even an estimate done. I gave a large range because we were trying to figure out what the next step was and this client had a large amount of acreage. There was uncertainty regarding how much acreage was owned, so the ballpark was to see if it was worth digging into since it was in a relatively remote area. I initially ballparked the area for $250-500/ac because there were some gas wells drilled in the last 5 years or so right next to the property, and gas was still close to $3/mcf at this time. It was borderline, but it was there.
Total fees charged for this work was $200, and it was mostly to find the many different properties and give guidance on the next step. Since the next step looked to be mostly a land question and this person was looking to sell, I referred her to a landman to shore up that side of it.
That landman then came back to me to ask my more formal opinion on the area (which was an estimate still, and not an appraisal, but still was a couple hours of work). I would tell you how much I charged for this estimate, but it appears I forgot to invoice him with all that happened in February. After looking at it closer, the wells drilled recently were junk at today’s economics, supported by the fact that no one had returned to drill any follow-up wells. This dropped the value of the non-producing acreage (it was all non-producing) to $40-70/ac.
I did see the question come in via email on the property value dropping, but at the time I had the flu and pneumonia along with my 7-yr-old, so it just took a couple weeks to get a reply back regarding what happened.
Anyway, just things to keep in mind when reading posts. Not everything in this industry is nefarious. Just most things
