Valuation Analysis of unproven gas/oil minerals

Our new CPA has a great program for structuring gas/oil assets BEFORE they are leased/sold that REDUCES the taxes greatly! In order to best use the strategy we need to establish the value of the gas/oil in the Utica/Point Pleasant Formations which is what we are going to lease. I see there is a computer program used since the 1990's, not sure how updated it is...and I see some mineral  assessors advertising. Has anyone had any experience in getting their unproven minerals valuated? Please share any details. Thank you!

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Permalink Reply by george m vietze on March 31, 2014 at 1:25pm

The above comment by Janice Hancharick to the pdf on evaluations has some great information on how to establish value in your area.  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 31, 2014 at 2:50pm

"The value of mineral rights that is not producing and not currently being drilled should not be very valuable."

Ok, the Greco Roman wrestling match with the English language aside, just what in the Hell are you talking about?  You come on here and ask people if there is a way to have the mineral value established then when given the option of using a professional to do the thing that you were asking for you balk at the price and call it "guessing".  Now you say that there isn't much value at all.  Ok, you're right.  Your undrilled land has very little value.  Give me details about the property's location and total size and I'd be happy to write you a check for a price that reflects your notion of "not very valuable".  I'll pay you 20% of whatever the next mineral buyer is paying, which seems like a close approximation of "not very valuable".  Let me know when you're ready to sign the deed over.

Permalink Reply by george m vietze on March 31, 2014 at 3:19pm

The "not very valuable" comment was made because the initial valuation of non producing property compared to a good production well producing lots of royalties that could have an extreme amount of value that would make it subject to estate taxes is very different.  An example would be if the mineral rights of non-producing property whether it be $3,000,$4,000 or $5,000

per ace would not make a significant difference, the main point is to get the non-producing property into a "family trust" early enough so when, and if the property or mineral rights are worth $20,000 or $30,000 or more an acre multiplied by a large amount of acreage where the estate tax of 50% or more comes into play, that is where the difference is.  These are only examples to prove a point.  The point is, if you expect the property to produce royalties and increase in value where if you die the estate tax would be in the area of 50% of the value, which in some cases would cause your heirs to sell the mineral rights to pay the taxes.  The initial value of the property would not change the tax savings very much, of course it would be better to have a valid independent value by a qualified appraiser but if you cannot afford the $15,000 or so you could value the property in a different manner by another independent source that may be less expensive.

Don't try to pick apart every detail, pay all the taxes you want to pay, but some people do prudent tax planning to protect their heirs and their estate.

Permalink Reply by al raptoria on March 31, 2014 at 4:16pm

Marcus,your reading skills aside, you appear to be incorrectly attributing a quote by George to me. I did not say "The value of mineral rights that is not producing and not currently being drilled should not be very valuable." Kindly rescind your double faux pas. I am the one who came here to learn via the thread I started and George has offered many suggestions which are valuable to those who added their own questions as well as having been valuable to me.

Seems you are "Greco Roamin' " with your own shadows, Pal. If there is anything you want to add to this thread that is sans insults and smacking of petty trollism (or are you a plant?) please do so now or forever hold your pieces. Some of us are really trying to learn and honorably share FACTS here.

The IRS reference numbers earlier given are FACTS. One can STRUCTURE their tax payments to suit their needs and DEFER them legally too, in SOME situations. Setting up the "chain of command" BEFORE a Lease is signed is one of those legal situations. You can't change the IRS CODE no matter how you try to ignore the rules - and divert with libel - those are the facts.

Your insults to George and/or to me are "stalker material."  Neither the learned George nor I (nor anyone with an IQ over a cantaloupe) are likely to EVER give you our "property locations!"  In fact, I'm done giving you the time of day - clearly you live in a different zone.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 1, 2014 at 9:02am

Apologies, Al.. I confused your dimwitted commentary with that of another poster on here. 

Permalink Reply by Frank Walker on April 2, 2014 at 1:14pm

OMG, please help me.

I'm laughing uncontrollably!!!!!!!

The mother of idiots is always pregnant.    ;-)

Permalink Reply by time will tell on April 3, 2014 at 6:29am

Frank, 

Thanks for the funny , the mother of idiots always pregnant .

I shot coffee across the room on that one . 

Permalink Reply by time will tell on April 3, 2014 at 6:24am

Give me a break , I'm with Grayson on this one : another Kool Aid seller .

Permalink Reply by time will tell on April 3, 2014 at 6:27am

I think they would good at ,,, ah  maybe writing poems , fairy tales .

Permalink Reply by INVICTUS on April 3, 2014 at 7:48am

Sounds like "Listed Transactions" in IRS Parlance.

I looked at it and into it.

Had some very reputable accounting/tax/audit firms second guess me on this. Bottom line is highly recommended to avoid these things.

It can be a very dangerous game to play if you get audited.

The Idea seems sound, particularly if the presenter of the "method" carries himself well in a crowd.

The problem are the fees in setting these things up (in my case, $125k) plus annual fees to maintain the entities. That's where these guys make their loot. and you are permanently stuck in the relationship with them as the 'intellectual property" that they use to foster this system is proprietary.

They have you for life with significant exit fees and you must sign a non-disclosure on their methods.

In other words, when you leave, you are now fully at risk with the IRS for not maintaining the "method".

If you get audited and don't do everything exactly right, the consequences are devastating.

The area of Tax law that these thing operate in are NOT settled tax law.

Just want to pass some experience on.

Permalink Reply by Frank Walker on April 3, 2014 at 9:32am

INVICTUS

Your post is very well researched and very well taken.  Straight up, you are correct.

I realize some individuals today benefit from your kind of thorough and intelligent presentation.

For an old country boy like me, though, it's sufficient to remain aware that, as always, there is no such thing as a free lunch!!  This has not changed over the years and it never will.  Period

Permalink Reply by george m vietze on April 3, 2014 at 10:20am

Frank, you are correct, there is no such thing as a free lunch.  Taxes are not free either and you and your family pay them with YOUR money.  I am not talking about wild schemes that form separate companies with made up valuations nor do I recommend using some banks as Trustee for a trust if they use charge excessive fee income.  

But, I do recommend that if your land is targeted for major drilling and you expect sizeable future value it might be to your advantage to speak with a professional tax consultant that has major experience with oil and gas rights to shelter those rights before they become subject to much higher evaluation to bypass probate in the event of your death and possibly, if it works for your situation, to spread the royalty income over family members which will further ease the income tax situation.  Your other options include paying estate taxes upon your death, sometimes forcing your heirs to sell mineral rights to pay the taxes, and paying income tax in a much higher bracket than necessary.

This is not a wild scheme but does involve the transfer of a deed from your name to the Trust.  This also involves some research and is not without disadvantages.  For example the banking institutions that have "Trust" departments have been known to charge large fees so you need to be careful about the entity that administers the Trust.

I am 76 years old and my land is also in the country and when I was raising my kids I went so far as not letting them have "free" ice cream because I wanted them to realize that "nothing" is free, including TAXES.  Some mineral rights generates millions of dollars over many years and its your responsibility to preserve those assets for you and your family.  If money is a problem in trying to research your particular situation their is lots of information on-line or if you have a local bank that you have a relationship with over the years most of the banks in the area where mineral rights have become valuable have a department set up for gas and oil customers and can guide you to the right information

because they get the benefit of your deposits now and in the future.  Stretch your limits and stretch your money and as someone once said, "Its your money, spend it the way you want to."

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