Before she died, my mother in law gave my husband her farm in southwest Indiana. There is 11 acres of tillable land, hilly pasture land with a house (29 acres), and an active oil well on the 29 acres. We have had the well for a year now and have received $8000 in royalty checks. We want to sell the whole property, and have some interested buyers. We have no idea how to value to mineral rights. The well is 6 years old. We don't know how much she received in royalty checks prior to her death. It is easy to get a value on the land and home, but we are having a hard time finding out how much we should add to the price for the mineral rights. While I would prefer to just keep the mineral rights (and extra income), my husband wants to BE DONE with the property and move on.
How much should we add to the asking price for the mineral rights?
Thanks!
If it were me I would keep the mineral rights, it would be silly to sell them
Short answer is the added value should be between 36 and 72 times the average of the monthly income (by production month) received over the past six months. Closer to 72 if there are lots of other wells around and lots of current drilling/leasing in the area, closer to 36 if the opposite is the case. I say this is the "short answer" because if there is a likelihood of any new wells being drilled here in the near future that would (or should) justify a higher multiple, especially if the area is "hot" with activity right now.
Many states have a website where you can check the local activity in a given area to see how "hot" it is. Additionally the county clerk's office is a good place to check to see which "professionals" might be buying in the area currently as all deeds are filed there. More deeds from mineral owners to companies means more activity likely. Some counties also require "tax stamps" be placed on the deeds indicating how much was paid for a mineral property. These can sometimes be helpful in determining mineral rights value as well assuming the buyers were honest and purchased the correct amount of tax stamps (a big assumption sometimes.)
It will also likely be necessary to have her estate probated in the state where the property is located in order to pass title to any prospective buyer unless it was given to you prior to her death. I would also check for any "suspense funds" being held by the well operator before selling the mineral rights as you would want to collect these prior to selling. It's common when someone passes away for the company to put a "hold" on royalty payments if the checks are no longer being cashed. They will release them to whomever can show current ownership of the mineral rights. This is why we always encourage people to check on this prior to selling inherited minerals rights.
Frederick M. "Mick Scott CMM, RPL
The Mineral Hub
I also would be inclined to keep the mineral rights, it's difficult to determine what their true value is as has been stated. Those 29 net mineral acres could be worth $290,000 or more over time, not counting the value of the surface. I don't know if you have held the property long enough to be looking at 15% capital gains tax but it is something to be checked and considered. When I weigh 15% capital gains tax against the royalty and the 15% depletion allowance/credit you get on your federal taxes, selling a producing property becomes even less attractive. I hope you are not going to lose 15% of the price received right off the bat.