Qualified Appraisals

I have a gifting question for those here who know a lot more about this than I. We are planning to pass our mineral rights on to our children and thought now might be the best time to do so particularly with some of the more favorable tax laws this year and next. The kids are in their 30's and 40's, so if it all works out we might all get to enjoy a little slice of this together. Anyway, we've been in discussions with our CPA/CFP about going through this process and have been told we would need to get a "Qualified Appraisal for Gift Tax Purposes" for the mineral rights or in order to proceed. This was a very specific request, but as our family is not in the immediate area any longer (or in the gas business), I thought I might pose the question to the board here to ask what exactly this is and if there would be someone in the area, or just who would I contact to discuss having one done. I was told to start with calling the oil companies themselves, but to me that just doesn't seem the best way to go to try and get the most value for  you own interests (not necessarily theirs). It was also suggested to discuss with the individual who helped broker the lease deal with us. Now we started there and they are looking iinto it for us, but nothing readily came to bear fruit. Maybe one of these avenues is the best way, I am just not sure. Has anyone else heard of this and if so, would there be anyone in the area or just who would I contact to discuss having one done. Any insight or contacts related into this would be greatly appeciated.

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Permalink Reply by TAURUS on March 17, 2011 at 7:56

Harryb - Please send me a friend invite so we can talk off to the side. I sent a request on your behalf to a company that does these appraisals. When I get their reply I can copy and paste it to a private message to you here on the forum. Or you can send me your email address and I'll foward it to you. Here are some comments from their website regarding mineral rights valuations. Notice they address both producing and non-producing property.

 

Mineral Rights Valuation

Mineral royalties are often valued for Estates, Litigation, and for taxation or taking purposes. Your CPA may value an income stream but the general rule is that those valuations are more than the market value for producing property and less than market value for non-producing (exploration) property. The reason is that production tends to decline with time therefore, royalty income is a declining income stream in most cases.

Also, mineral appraisers with a geological background can make some judgments about the long-term potential of such royalty or mineral holdings.

To properly do an oil and gas appraisal, the appraiser function is usually best separated from the estimating function. The estimating function sets up the parameters or forecast of the income stream by estimating the remaining reserves, expenses and income associated with oil and gas production. That function is best left to a member of the SPEE or a reservoir engineer or geologist experienced in estimating probable production.

The appraising function takes the estimate above and translates it into a traditional appraisal using the Income, Sales, and Cost approaches (actually the Cost Approach is rarely applicable.)

landownerPermalink Reply by P.G. on March 18, 2011 at 12:37

Who is going to pay what the minerals could be sold for for just the "RIGHT" to mine them?

Seems everyone keeps tallying up the value of the minerals as the price for the right to mine them....

 

Permalink Reply by Harryb on March 19, 2011 at 9:04
Soccer mom - I do understand and it is for that very reason that I wrote in questioning P&A's response to me.  Quite frankly I think it is appaling that a company would tell me there is no value when there is and they just don't want to do the job.  Don't you think I should have been given the option to decide whether I want to spend thousand of dollars.  It's no wonder people in the oil/mineral business have such a bad rap.  Nobody is honest with anyone even on something like this.  You should let your dad and uncle know, that there are people like me who are willing to pay for services even if cost money.  If it something that I need done I really don't see how I have an option anyway.  I'm sure if I look hard enough I can find someone who is willing to take my not so "small job" in the middle of a "big play" and when I do, I will gladly pay the person the money they are entitled to for the job!!

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