Stive said:
Part 1: Is there a rule of thumb regarding the appraisal district's valuation of producing minerals? It seems like I remember my father or uncle saying 5X of annual production was a factor but I'm not sure if that had to do with appraisal value, sale value, balance sheet, etc. What's the most common way of determining that valuation these days? Comps? Income?
In Texas the income method is generally used, based on the producing reserves (usually consistent with a proved reserves case). You can get the monthly production of the well, lease, or unit off of the RRC website, plot it, and look at the decline to get your product forecast. You include pricing and operating costs in a discounted cash flow and that's generally how they come up with the values. For royalty interests they should be limiting the production forecast to the economic life of the working interests. There are some cases where they may use recent purchases or other as comps, especially for royalty interests, but most are income method.
You can contact the appraisal district and ask, but many of them use a firm, such as Pritchard & Abbott to estimate mineral interests. You can contact whoever that is and discuss it if you think yours is overvalued.
If this is a royalty interest they tend to want to discuss an income method valuation only with the operator, since the production forecasts, pricing, and economic limit are usually set using the 100% working interest evaluation. You might need to complain to the operator and get them to try to get it lowered.
If you are in California, Oklahoma, or other states the valuation process can be different.
Stive said:
Part 2: Has anyone here ever challenged the appraised value of your minerals for property tax purposes and had any luck with it?
I actually made a living for a few years arguing property taxes of mineral interests before prices came back in the early 00's. We were really successful at getting reductions where the taxing authority was too high and even mildly successful at getting reductions here and there where the taxes were probably already reasonable.
There are a number of Texas minerals property tax protest groups around. I'd probably try to talk to the appraisal district very soon, talk to whoever is doing their evaluation to make sure you understand how the property is being evaluated. Then if you think it's too high I'd talk to the operator. As a royalty owner you can still file a protest and force the county (and operator) to deal with you, but at that point I might look at talking to a property tax firm that specializes in minerals.
