Asset valuation

Is there a way, based on royalty payments received, to value an existing least for estate purposes? My father had two leases that we're not interested in selling, but I need to know what to value them at to the person who takes ownership. It's pretty small. One was $108 in royalty fees in 2012. Is there a rule of thumb, i.e., Amount of payments times X number of years that would be helpful.

48 months is used as a average. I can vary widely though. I'm a production accountant and sometimes your not even receiving the right amount. You could think about getting an audit done first. Then use a multiple to determine value. Non producing zones can add value too.

Hope that helps,


Wow, a production accountant, you are the man I need right now! I am new to oil and gas ( except for protesting the Enbridge pipeline here in BC) I have been filing k-1s with my tax returns for forty years on these arcane and until recently minuscule payments from oil companies who have changed hands and names and bounced FoxSpringer leases between them over the years more often than I get haircuts. Had I known who Koch Oil was back then I might not have cashed their checks.

Then I read that Continental Resources has discovered black gold on the tracts of land my ancestors bought the mineral right to. I guess they discovered it before Continental. I am besieged with offers from land men, and last year leased the rights to 120 acres on Section 33, Township 4 North Range 5 West, Grady County OK.

Today a member of this forum emailed that a well has been drilled on that tract. How do I find out whether we struck oil?! (This is all very funny to us remembering all the jokes in the family growing up about when our oil wells come in...

Is there a formula to guesstimate royalties? I am doing some financial planning. if we own 120 acres, what % of the well is ours, so to speak. Does a Section in Grady County mean 160 acres, quarter sq mile?

How many wells are drilled in one section, and does it go in a grid? Across sections? On line you can read that a gas rig is the size of a coupla VWs.

Are they going for gas or just oil? This is how little I know.

Continental is about to drill on another piece in the patch which my sisters and cousins own is

Section 24, Township 3 North, Range 5 West. Grady County

As an accountant you may be the best person to be able to explain the finances of the first option offered on every contract proffered, "full participation".

Does this mean we owners of the mineral rights could invest in this well, and by paying our percentage share of the costs, i.e, of this 9 million budget, and if it produces, reap the royalties from the 75% side? If I own the rights on 60 acres of this section, what is my ownership percentage? Would I divide this % into 9 million to guesstimate my capital obligation? Obviously we would need an attorney as well as an accountant if you can refer anybody.

Happy American Thanksgiving!

Chipper Roth

How does one go about calculating possible future royalties? I

It is my understanding the IRS values royalties at 3x annual royalties for estate tax purposes. Leased but non-producing properties are valued at 1x the bonus.

I am not thinking of estate tax yet. I was wondering what royalties might be projected to come from wells that are going in now, as we speak...

How are royalties computed? Do you take your percentage ownership of the percentage royalty X the number of barrels of oil pumped per month price X price per barrel after production expenses?

It is not that simple I am sure.

For how many years does an oil well keep pumping?

Thanks for your info.


It depends on well spacing and whether a unit has been formed. If your family owns 100% of the well, I.e. the well has not been combined with other acreage to form a unit, then your royalty depends on how the lease is worded. If it is a free royalty, you take the gross production, times the royalty percentage, times your percentage within the family, subtract your share of production taxes, and that should equal the check. If the lease is worded where they can deduct certain production expenses, you deduct these expenses from the gross and then do the same calculation.

$400 per acre for bonus/3/16s royalties in Logan, Cty, OK. Can a better deal be had?

Thanks so much for the replies. You guys are tremendously helpful.

Anyone know the average % of "production taxes/"

Just wondering if what I was offered is the same as everybody else? $400 per acre & 3/16s royalties in Logan County. Chipper, I think production taxes depend on which option you took.