Appraisers' Free Forum

Estate appraisal -- older farm house, outbuildings, 79 acres w/agricultural recoupment taxation. Typical set up for the county with adequate, supportable comparables. BUT, there is a gas well on the property that provides free gas to property (I can handle that) and approximately $200,000 in royalties a year (I do not have any matched pairs to handle this!).

Suggestions, thoughts . . .

One of the best in the country on gas is Terrel.

First of all, you are not qualified to estimate the overall value of the gas resources. There are specific appraisers out there for that, and you are talking a minimum of $2500 to get a preliminary estimate of the actual reserves available.

In this case I would clearly state that you are appraising surface rights only and that subsurface values are not included as part of the opinion of value. Right now you are in the same position as being asked to value some stocks that are listed on NASDAQ, but you don't know the quantity or the name of the investment, all you know is dividend from the last five years. If they insist on your doing this, raise the fee to a high four or low five figure, hire Terrell to work with you and let him get the Geological Appraiser on board.

Otherwise, decline the assignment.

Thanks Greg.

After stating that report only includes surface rights, would I be out of line to suggest a separate appraisal is needed to value the gas well. I often do this with timber, coal, etc. Don't know much background but probate court appointed me, not an attorney.

You can accept an assignment beyond your competency, but you have to disclose that you're not competent and what you intend to do to become competent. Since the court appointed you, I'd send an engagement letter with a fee quote to the clerk. Tell them you're going to hire Terrell to do the gas stuff, and that you'll handle the surface rights. Disclose that you may need to hire a geologist, too, if that's the case. By all means, before you write the letter call Terrell and see what his fee will be. Add it to your own. Personally, I'd pad that estimate a little just to be safe; you can always get away with underbilling on the invoice.

Long diatribe to suggest that you become a resource to the court. They're looking for solutions, and you can provide them.

Jim is right.....run the SOW by the client. explain the situation. let them decide. Then call Terrill and find out what he thinks is fair, find out what he thinks it is going to cost to value the subsurface rights (like I said it takes a specially trained professional to do that.....Ter is a Geologist, but he does not do the survey/appraisal himself, so it will require a third appraiser on it). The client may very well have an accountant to value the cash flow and all they need is the surface rights appraised. If so, you are golden. If not, let them go elsewhere or hit them with what Ter and company is going to charge plus your fee plus your bonus for coordinating it.

If you do the surface rights only, make sure it is included in the comments that you are aware that the income exists, that it's source is known, and that you are appraising the property without considering the impact of that income source.

Report is going to be subject to oil/gas analysis of existing gas well and existing timber. Typically court wants real estate valuation from me and then they determine if other valuations are appropriate for the situation. We have some local oil and gas 'experts' available from Marietta College (less than 75 miles from subject).

I thought about the accountant also but how long will the income stream exist (typically gas revenues go down annually in area). There are not many of these wells in our area but they are referred to as 'million dollar wells' and they have been drilled in past 5 years. I testified in divorce case with one of these on property couple years ago, there was an oil and gas guy there also. Lady (younger than me) got royalities for 10 years, husband (older than me, get the picture?) got the land, improvements and royalities at end of 10 years

When I was inspecting the property all I could think of was the Beverly Hillbillies -- Jedd Clambett. Not sure I spelled that correctly.

It's Jed Clampett or maybe just one T. That is all I know about this, but the advice you got before seems pertinent and logical.

The mineral estate needs to be valued by the income approach. The process involves determining the net mineral acres (which may be different from the surface acres. The size of the drilling unit if it is "pooled" - you need to find that in O G records. OR you need to get the "division order" which will tell you what percent of the well your party has.

THen you need an engineering or geological report estimating the decline curve. With that info, you can determine the remaining reserves. That then allows you to do the time value of money "thangy"...to vet the whole thing...OR, you can do what a landman would do. Total up the past 3 - 5 years of income from the well...that's your value. Oil will tend to be in the lower value (depletes quicker usually) and gas towards the higher number (lasts longer.)

You can do it but it might take you 4 years - to get thru Petroleum Engineering school ...

Otherwise, you need to find land sales where income production sold with the place, and that is unlikely to occur.

ps - any Q's email me roxnoil @ yahoo.com