Experienced California Oil, Gas & Real Estate Representation

How is the value of mineral rights determined?

On Behalf of | Nov 16, 2018 | Uncategorized |

Ideally, the agreement between a mineral rights owner in California and an oil and gas company to drill a well should be a mutually beneficial arrangement. The oil company has the equipment and expertise necessary to reap the bounty of your estate, and you get a percentage of the profits. According to MineralWise, however, the value of your mineral rights can vary widely on the basis of several different factors, some of which you have little to no control over.

The commodity prices of gas and oil are not only among the most obvious factors contributing to the value of mineral rights, but they may also be the most variable as prices fluctuate on a nearly daily basis. You can continually monitor changes in oil and gas commodity prices on the New York Mercantile Exchange.

As with residential real estate, the location of your mineral rights holdings matters greatly. Your mineral rights value will be higher the closer you are to known hydrocarbon accumulations according to the study of geology. 

The more land you have available to lease, the higher your mineral rights value will be because it is easier, cheaper and therefore far more desirable for oil companies to lease a large tract of land than a small one. 

Finally, mineral rights have a higher value when they are currently in production. The value of nonproducing minerals comes from their potential, while the value of minerals under production stems from the current cash flow that they generate. 

The information in this article is not intended as legal advice but provided for educational purposes only.