Question for the gurus and/or hive mind:

My mom has some small royalties she receives from Dawson County. The notice of appraised value came in the mail and she has some questions I can't answer.

So, to use totally made up numbers, she gets $1000 in payments each year for her part.

The appraisal for her part of the property tax is something like $2000. And they want to raise it to $2500.

I guess I'm stupid, but if you have income producing property that gives you "X" dollars each year, then your appraised value should be "X", not "2.5X".

If we protest it, do we have a case, or do they laugh in our face and tell us it's actually worth 2.5x?

Thanks in advance.

No nubile young lady photos for your help, I may have to show this to my 88-year-old mom. But since this is the Outdoors Board, I'll give you this fantastic photo of my son-in-law, posted on Facebook by his ammunition company, Apex Ammunition.

This stuff will make you sick. Tried to get this fixed in this legislative session but our Republican majority ran for the hills at the first shot.

CAD just pulls a number out and you are forced to protest.

Total BS.

Is there a way to determine fair market value?

And by that, I assume you mean that oil and gas is not taxed on productive value, as is Ag land?

I assume you are talking Ad Valorem Tax. A FMV, to me, would range around 3-5 years of current income.
$100 a month would be $3600-5000.

No way that she should be taxed more than income. I would say there is an error and you should protest

I'm not to well versed on the mineral side of the system but I think it has to do with the estimated worth of the oil in the ground.

You can get a reservoir engineering type analysis that takes into account ultimate production over time with product prices. That is not cheap and more commonly used in IRS processes.

You can accomplish the same thing with a lot less effort with an hours worth of preparation for a tax protest.

Oil and gas is valued on a discounted cash flow. The oil companies typically provide an estimate of the reserves, annual operating cost and an anticipated decline curve. The comptroller provides the price per Barrel for oil and the price per mcf of gas for the district to use in the calculation.

If the well has a value of $2,000,000, then based on a typical lease, the oil company will pay the taxes on 85% of that value ($1,700,000) and the royalty owners pay taxes on the other 15% ($300,000). That $300,000 is divided by each royalty owner's percentage.

A good rule of thumb is to take an annual income stream and multiply by 4 or 5 to get some idea of your value. But keep in mind that if the well value is high, then the oil company is already on it. They have a much higher stake in the equation than the royalty owners.

Our CAD will give you the breakdown on how they determined it. Fairly detailed and based upon future cash flow, price of oil/gas etc.

Royalty companies are often sending her letters, offering to buy her out. The buyouts usually amount to about 30 months worth of royalty. I thought that might be a starting point.

Though we had one a few weeks ago who offered her about 300 months worth of royalty. Was tempted to give them a call, but I figured they'd hang up when they realized they dropped or added a digit.

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But keep in mind that if the well value is high, then the oil company is already on it. They have a much higher stake in the equation than the royalty owners.

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Good point, as her interest is some 0.0xxx percent.

The question is, do they adjust the rate for all owners? Obviously, there are multiple royalty owners. If we win a protest, would they adjust for all? Or if the operating company protests, do they automatically adjust all the royalty owners, or are they just SOL?

Canyon

Those guys only steal, I mean buy, stuff at a huge discount. I consider most of them scam artist. I know a lot of older senior citizens that took those deals and lost their income.

jrbaggie said:

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Canyon

Those guys only steal, I mean buy, stuff at a huge discount. I consider most of them scam artist. I know a lot of older senior citizens that took those deals and lost their income.

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Yeah, mom has never shown the slightest interest, but some of my cousins who are heirs to the same land, probably have sold theirs.

The only good thing is I consider it a Dire Emergency Fund. Were mom to need cash (no way she ever will), it's nice to know she has a assets she can sell.

Every time I see one of those letters, I think of the J.C. Wentworth Commercails

I know what you mean. Selling it would be a snap, and for much higher than they would give you.

Think about it this way. There is a Canyon Unit #1 producing well. It consists of say 77 different interest owners in that unit......some working interest owners and some royalty interest owners that will total to 100%.

The 8/8th production is reported in our case to the Texas RRC on a monthly basis.

All CanyonAg77 needs to do is grab recent production history and plot it out. Grab a straight edge and project the next five years. If it's on a steep decline cumulate the next three years of production. If it's flat use five. Multiply the production prediction times your interest and grab the current product price off the internet and multiply it into the equation.

That number times the county or school district taxation percentage is the answer as to what your Ad Val Tax should be.

The taxing authority can be off in historical production, ownership, pricing or projection but they can't be off as much as you state.

If they are wrong on projection etc the change should be reflected in all owners.

Disclaimer: Robert L Whiting stated many times while I was a PetE student at A&M, "You don't produce oil and gas with a straight edge."

If you have saved all your royalty payment stubs all of the history is in those stubs to project.

Canyon,

Did not see your question last night about changing values for a royalty owner.

For a royalty owner to get their value changed, the total value of the well must be changed. Because the royalty owner's value is based on a percentage of the total, then the total value has to be reduced in order to get a reduction.

I apologize for the delay.

Sorry, that is not true. A royalty owner has the responsibility for his own division interest. The net present value of the well and individual DOI can be wrong. An individual can get that corrected as a singular action.

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Sorry but Canyon's OP didn't have anything to do with royalty hounds and mail box money. He was talking about her local appraisal authority increasing the value and the possibility of getting them to change.

.......and if you are working for and E an P company and advising royalty owners regarding decision making you are on a slippery slope.

sunchaser said:

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Sorry but Canyon's OP didn't have anything to do with royalty hounds and mail box money. He was talking about her local appraisal authority increasing the value and the possibility of getting them to change.

.......and if you are working for and E an P company and advising royalty owners regarding decision making you are on a slippery slope.

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Hence my preface of having nothing to do with OPs question.

Also - not advising and I make that quite clear. Nothing wrong with telling an owner multiple wells will be drilled in the future.

Signed - lawyer (not your lawyer).

Canyon. I have experienced a similar situation. A lot of the rural counties are now hiring outside companies to do their appraisals.
I had good results going before our Appraisal Review Board. (ARB). the ARB should be made up normal landowners and citizens of the county. They were formed by the Comptroller to give property owners a fair shake and way to protest your property taxes.
They don't work for or represent the CAD.
and should be fair.

sunchaser said:

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Sorry but Canyon's OP didn't have anything to do with royalty hounds and mail box money

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Yes, but it did figure into the discussion as to how to arrive at a fair market value.

And you keep referring to Ad Valorem Taxes. Same thing as property taxes?

CanyonAg77 said:

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sunchaser said:

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Sorry but Canyon's OP didn't have anything to do with royalty hounds and mail box money

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Yes, but it did figure into the discussion as to how to arrive at a fair market value.

And you keep referring to Ad Valorem Taxes. Same thing as property taxes?

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Yes

I have tended to call them AVT from dealing with counties from the oil company ownership side. Production taxes also show up on a royalty stub.

The Canyon acreage will probably see a county and school district tax on the surface. Those go into real estate or property for me.

You will also see a county and school district tax on the royalty appraisal. I call that AVT

The AVT and production tax total goes into the depletion allowance calculation for IRS purposes.

Hope that makes sense. If you don't own the surface you won't see that property tax

Ad valorum is a Latin term meaning "according to value". Ad valorum taxes are property taxes. Any tax that is calculated based on a value set by the appraisal district is a property tax. This is typically your county, school, city or other special districts.

On a note related to the fraud that is Property Tax Appraisal in Texas: I was stunned to learn that, in Travis County, the TCAD appraisers can also work for the companies that charge to contest your appraisals. Major conflict of interest. Just like everything else the government touches, that's F'd up.

If you're sending out your company's drill schedule I'd like to get on that distribution list

CanyonAg77 said:

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Is there a way to determine fair market value?

And by that, I assume you mean that oil and gas is not taxed on productive value, as is Ag land?

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rule of thumb is 4 to 6 years net income. the last auctions i have seen royalties sell, .they have sold for 5 to 6 years of net income.

your mileage might vary.

are we talking about royalties from fractional ownership or overrides (investments) or income from being a mineral right owner?

Simply income from mineral rights owned on land, did not participate in drilling.

NRD09 said:

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If you're sending out your company's drill schedule I'd like to get on that distribution list

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Sigh... either you guys are total smart asses (yeah I TexAgs) or are being dense lol.

I'm not sending out drill schedules or anything that's not public knowledge. They're literally filed on the RRC website.

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I'm not sending out drill schedules or anything that's not public knowledge. They're literally filed on the RRC website.

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Smartass but also serious. Having APDs (PUDs) and having immediate plans to drill a property are completely different things. I agree with sunchaser in hoping that you are very careful in what you communicate to your owners. Say a dude needs to sell minerals or he's gonna lose the farm, you tell him to hold tight because he's about to get paid, then the drill schedule changes and he doesn't get a well, that seems like it would put you and your company in a precarious position. Curious to hear others' thoughts on this.

NRD09 said:

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I'm not sending out drill schedules or anything that's not public knowledge. They're literally filed on the RRC website.

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Smartass but also serious. Having APDs (PUDs) and having immediate plans to drill a property are completely different things. I agree with sunchaser in hoping that you are very careful in what you communicate to your owners. Say a dude needs to sell minerals or he's gonna lose the farm, you tell him to hold tight because he's about to get paid, then the drill schedule changes and he doesn't get a well, that seems like it would put you and your company in a precarious position. Curious to hear others' thoughts on this.

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Always enjoy these threads, and the back and forth they invariably generate. Lotta good info/advice to be gleaned, and they're always entertaining because of the respective "experts" that invariably disagree. Good stuff!