The most important thing to understand about mineral rights value in Texas is that there is no way to know the value until you sell.
When you sell a home, you can easily see the approximate value by going to Zillow.com.
When you sell stock, you easily see what the stock price is at CNBC or your favorite broker.
When you sell a car, you can easily check autotrader.com and see what the value is.
If you are selling mineral rights in Texas, there is no way to know the value until you sell. Why?
The reason is that each mineral rights property is unique. There are five factors that dramatically impact the value of mineral rights value in Texas.
1. Net Mineral Acres Owned: The most important factor is how many net mineral acres you own. You are paid royalty income based on how many net mineral acres you own out of the total unit. For example, if there is a 640 acre unit and you have 20 net mineral acres, you have just 3.1% of the total acres in the unit. However, if you have 90 net mineral acres in a 640 acre unit, you have 14% of the unit. The more of the unit you own, the more you get paid.
2. Royalty Rate: The royalty rate determines how much of the oil and gas produced gets paid to you after the oil and gas operators takes their share. The higher the royalty rate, the more money you make. All other things being equal, someone with a 25% royalty rate is going to get twice as much as someone with a 12.5% royalty rate.
Note: The net mineral acres owned, royalty rate, and unit size are all used to determine your share of royalty income.
3. Timing: The value of mineral rights is very closely related to the price of oil and/or gas. Ultimately you own the oil and gas underground. If the value of that oil and gas goes up or down, the value of what you own goes up or down. However, it’s not exactly a 1 to 1 relationship. If oil jumps 25% in a month, mineral buyers are not going to assume it stays 25% higher forever. Oil and gas prices fluctuate. The average price from the last 6 to 12 months is a better indicator of the value. If you sell when oil has been averaging $75/barrel for the last 6 to 12 months, you’re going to get a better price then if you sold when oil was averaging $40/barrel.
4. Royalty Income: Your current royalty income has a very large impact on the value. If you are getting consistent royalty income over $2,500+/month, this is going to appeal to a large audience of mineral buyers. The reason is that mineral buyers get an immediate return on their investment. If you have very little royalty income, this reduces the demand in most cases.
5. Potential Income: The last factor is the future upside potential. This is the hardest factor to estimate! The question is how much income will be generated in the future and when will that income start? Some mineral buyers will put $0 value on the future upside. They only look at current royalty income. Other buyers are willing to buy a property with $10/month in royalty income and pay $5MM based on what the mineral rights will generate in the future. This factor alone can cause offers to swing dramatically from one buyer to the next.
There are many other factors that affect the value of mineral rights in Texas. While those factors are also important, the factors above is what swings the value dramatically from one ownership to the next.