I am attempting to back into how an Appraisal Company calculates mineral rights appraised values. (Natural Gas in my case). I did obtain a page of abbreviations and parameters but I am unable to figure it out. The attached is actual data on one of the gas wells that I built into a spreadsheet.
My goal is to figure out the equations they have used to come up with these values in the blank cells in row 5
Can someone assist me please?
Ken Scheepers
Forum%20Appraisal%20Question.xlsx
2784-ForumAppraisalQuestion.xlsx (10.8 KB)
I do not see any calculating formula's in the spreadsheet, only numbers.
They appear to be estimating the annual decline rate at a certain exponent which yields a Expected Ultimate Recovery (EUR). The method used is quite suspect until I see that formula... But assuming the estimate of reserves is correct, then they appear only to be applying a price x reserves less annual(?) operating costs. I don't see the risk factor unless it is the 0.6..
I work numbers a little different from most engineering "appraisals".... I am a geologist and i am a CERTIFIED GENERAL APPRAISER. My calculations are (hopefully) a little less opaque. I estimate the EUR for a "Risked" reserves. Once an estimator calculates my decline curves I use the remaining reserves (EUR minus already produced) at 100%. For any PUD (Proven undeveloped) reserves, I would apply a haircut for the risk that, in fact, the gas production won't be the same. Since I don't have a producing record, I use a nearby well as a PROXY for the PUD production. If the unit can support 8 wells and i have data on 4, and 4 are PUD, then Total EUR plus 4 x average EUR of the producing 4 less that gas already produced is my estimate of the ECONOMIC gas in place. That figure is almost always much less than the calculated total gas (also called Technically recoverable gas) that may exist (much of which cannot be produced economically today).
Then price... it is almost always 1/3 ± the current market price. Antero, for instance, just sold off its Arkoma reserves. Price ÷ MCFGE = $1.09 or so.... or, again, roughly 1/3rd the current wellhead price.
in my no so humble opinion, an "appraisal" of "Market Value" by a non-appraiser is not an "appraisal" rather is an evaluation.
Of course outfits that do ad valorem appraisals can take liberties that would get a certified appraiser in hot water with the state board....they are truly above the law and few taxing equalization boards have the expertise to contest or vet same, so all they do is rubber stamp it... in fact, such values are more likely based on production than on any real "value" per se. Thus they are a production tax not a market driven tax.
Thank you for your valued information. I actually have been in contact with the Appraisal Firm, shared my information spreadsheet and clearly the data they use is not close to actual production, especially the expenses. It turns out that the expenses to extract and transport etc. in 75% lower than actual.
We also discovered that what the Company submitted to the Rail Road Commission here in Texas is "rather different" in the production volume. I have waited over a week now to why there is a discrepancy, still no word.
I will challenge these appraised values all the way to the AG if necessary because I agree with you, since nobody withing our county tax office has any idea of how all this is calculated, they will just rubber stamp it!
It's time for "We the People" pay attention to these issues and educate ourselves otherwise we will continue to be taxed and taxed and taxed! If I can "prove" that the mineral right are being appraised at an unrealistic value to generate tax revenue for local governments, this may help may mineral owners.
I'll keep you posted with any new information
If Tx is like AR, the price is set for Jan. 1 of each year, which is the peak price season...