| Understanding your Appraised Value Minerals |
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To
assure that you are being assessed correctly, we want you to know what
information we are using to value the lease(s) in which you have a mineral
interest. We develop production rates
for the lease using monthly production reported to the Railroad Commission of
Texas. Monthly lease volumes sold and
the income received for them, as reported to the Comptroller's Office for
severance tax purposes, is used to help us develop product prices and also to
estimate your previous year's income.
Some Helpful Information about your Notice of Value Your Taxable Value The taxable value that appears on your Notice refers to the market value of your mineral interest. Market Value is the highest price, in cash or its equivalent, that a willing buyer and a willing seller would agree to buy or sell, if neither are under any duress to buy or sell, and if both are knowledgeable of all the uses of the property or interest that is being transacted. So the market value of an income producing asset, which your mineral interest is, will rarely be equal to one year's income. Rather, it will equal multiple years of current income. This multiple can range from one to six years, with an average of around three years or 36 months of current income being a commonly used indicator. Multiple Notices of Value If you receive multiple notices, it may be that there are several producing zones within the same lease. Each producing zone in which you have an interest is identified by the Railroad Commission with a different RRC lease number. You may also receive multiple notices if you have ownership in different leases. You can determine if your notices are for different producing zones by locating the field (reservoir) name in the Property Description. If the multiple notices have the same field name but different reservoir names, then there are different producing zones on the same lease. The Property Description The property description contains information about the property in which you have a mineral interest. It contains the lease name, lease acreage (if available), the operator’s name, and the field in which the lease is located. It also describes the reservoir (or producing zone) from which the well or wells are producing. It also indicates the decimal mineral interest you own. A typical Property Description on a Notice produced by Capitol Appraisal Group for an appraisal district is shown below:
ROY W V -C
HAIR, ROGER D./POST (GLORIETA) AB 957 BLK 5 SEC 134 /H&GN SUR .000625 R RRC# 012345 The producing zone in the above example is (GLORIETA) within the POST field. Checking your Decimal Interest and Type Be sure to compare the six-digit decimal interest and type [royalty, overriding royalty or working] on the Notice with that shown on your royalty check stub. Other than a rounding difference in the last digit, the two decimal values and type should be the same. Using this decimal interest, your share of the market value for the lease in which you own a mineral interest is determined. Some Helpful Information about your Appraised Value The appraisal of the property in which you own a mineral interest is based on an income approach to value. This entails estimating the remaining future reserves of the property and the timing of how those reserves will be recovered. This estimation of future production along with the estimation of future pricing generates an estimated yearly income that is discounted to current day dollars. Each succeeding year’s income is more heavily discounted than the previous, thus rendering less and less value contribution with each succeeding year. For example using a discount of 20%, a dollar ($1.00) anticipated to be received in the 10th year of the productive life of an oil or gas lease would only contribute $.18 (18 cents) of value in today’s dollars. Whereas a dollar anticipated to be received in the first year would contribute $.91 (91 cents) in today’s dollars. Each year's value contribution is then added, and a market adjustment factor is then applied. Your value is determined from this total, based on the type of interest you own and the decimal interest you own in the lease. Income you receive after January 1 The appraisal date is January 1 of each tax year. By the time you receive your notice, you may have received as many as 4 months of income. This income, along with the income you received the previous year, can be helpful in answering your question. Take the 12 months of income and divide it by the number of months it represents. Then divide that average monthly income into the value that is being projected for your mineral interest. The result will be an estimate of how many months of income it will take to equal your value. As mentioned earlier, a commonly accepted indicator is around 36 months or 3 years. Helpful Information about Product Pricing in the Property Tax Code Section 23.173 (a) of the Texas Property Tax Code reads as follows: If a real property interest in oil or gas in place is appraised by a method that takes into account the future income from the sale of oil or gas to be produced from the interest, the method must use the average price of the oil or gas from the interest for the preceding year as the price at which the oil or gas produced from the interest is projected to be sold in the current year of the appraisal. New Leases If you are receiving income from a producing zone that is new, there may be further risks that need to be considered. However you can still take the income received, since you began receiving it, and divide that income by the number of months it represents. Then divide that average monthly income into the value estimated for your mineral interest. This will give the number of months of income necessary to equal your value. If you have received no income but know you have signed a lease, contact the operator listed in the Property Description of your Notice of Value, or contact persons your have dealt with in the lease signing. If you have any questions or need further assistance from May through July, please call our Royalty Taxpayers Phoneline at 512-233-2189. |