VALUING NONPRODUCING MINERALS

摘要

Mineral and royalty buyers are often required to assign value to miscellaneous,lower dollar-value,nonpro-ducing minerals.Buyers know how they want to price producing royalties and properties in attractive areas likely to get developed in the near term,but they rarely have confidence assigning value to mineral tracts that may be unleased and located in a county where there is little ongoing oil and gas development.Historically,the market has used an approach referred to as the multiple of lease bonus method(MLBM).The MLBM suggests that the value of nonproducing minerals may be equal to a multiple of 2.5x to 3x a representative lease bonus.For example,if minerals in an area are being leased for $200 per acre,the MLBM suggests the minerals are worth $500 to $600 per net mineral acre.The MLBM is based on the logic that a mineral owner may lease and re-lease(upon expiration of the earlier lease)the subject minerals multiple times over the course of an assumed holding period,earning a lease bonus payment upon each new lease.However,as is widely known,there are many shortcomings to the MLBM approach.The 2.5x to 3x range is somewhat arbitrary,and lease bonus income is not the sole source of mineral income.Also,the amount of lease bonus paid by a lessee is often contingent on or interrelated with the royalty rate so the MLBM would theoretically overvalue minerals where the lessor nego-tiated a high lease bonus rate at the expense of a lower royalty rate.Moreover,it can be difficult to define a representative lease bonus rate,especially during periods of rapidly changing lease bonus rates.