Hello, I've recently purchased 9 mineral acres in western, OK. Their are 4 producing oil and gas wells on the property with monthly income of around $300 (as far as I can guess). How would I go about valuing these royalties?
Thanks
The valuation is relatively complex. Decline curves, estimated future price of product and discount rate all play into the equation.
If you want quick and dirty, a multiplier of 35 to 50 times the value of the average month of production over the preceding 18 months will get you in the ballpark of market value, which has nothing to due with a discounted cash flow. Therefore for your approximate 300 per month, FMV would range from $10,500 to $15,000.
There are several MAJOR considerations that flaw the multiplier method in establishing FMV.