Valuing mineral acres retroactively

[Sarah701]

Hello-

I am new here. I see other people have posted similar questions before. I am trying to estimate the value of mineral acres in the Bakken back in 2007. That is the year the basis was set. This is just before the oil boom took off in the Bakken. We didn’t get a proper estimate then. Would I have to comb through county records to see the average purchase price of mineral acres in 2007 in the Bakken?

Thanks so much, Sarah

[tracy_lenz]

Hi Sarah, and welcome to the forum!

If the property was not producing at the time, then basically, yes, it would require going back and retrospectively determining what the acreage could have sold for in 2007, without using information regarding pricing/reservoir/leasing/technology after the date of inheritance.

First, if this is for stepping up the basis for capital gains tax, the IRS has guidelines on how to establish value through the IRS Tax Code 4.41.1.3.9.6 (07-31-2002) https://www.irs.gov/irm/part4/irm_04-041-001 and Treas. Reg. 1.611–2(d) https://www.govinfo.gov/content/pkg/CFR-2012-title26-vol7/pdf/CFR-2012-title26-vol7-sec1-611-2.pdf, the minerals need to have been inherited rather than gifted/purchased, and depletion/depreciation needs to be subtracted for producing properties. Property with producing wells in 2007 would likely be near depleted in basis value by now unless it wasn’t fully drilled at the time.

With that info aside, non-producing acreage prior to the shale boom would be very dependent on proximity to established oil and gas fields. I’m not certain county records in ND has sales values for mineral acres? I could be wrong. Typically sales data is not in the public domain, and even when it is you’d need to be sure it was comparable (to get a $/NMA value) and a properly marketed arms-length transaction, which is hard to come by (but possible).

I’ve generally found that acreage without producing minerals nearby but in the same county usually sells in the $50-300/NMA range, but in areas with active leasing, lease bonus data can be used to ballpark equivalent sales values at the time by using multipliers. The Lierle report maintains leasing data from a variety of sources for each county in the US with activity, and has historical reports back into the 1990’s which can help establish trends for your area. County records and public land records of leasing can help narrow down county averages from that report to your specific area, along with local historic drilling trends and known reservoirs to put it all into context for proper appraisal.

2007 vs 2021

[TennisDaze]

And remember to reduce your basis by the cumulative percentage depletion claimed from 2007 forward. The basis can be reduced to zero, but never becomes a negative number.

[Sarah701]

Thanks very much, Tracy. That is a lot of great information. The acreage leased in 1994 and was producing next-to-nothing in those days.

Sarah

[Sarah701]

Thanks, TennisDaze. Good advice. Sarah