Valuation of lease rights in a limited partnership

Good morning!

 

I am a business valuator that leads my firms valuation practice. I have received numerous calls in the last few days regarding the valuation of limited partnership interests which own Marcellus shale lease rights.  The purpose of the valuation would be for estate planning. I have performed numerous similar valuations for limited partnerships owning real estate and I know the methodologies used and informational sources available to perform these types of valuations and substantiate the discounts associated with them.  While they are similar to a valuation of a limited partnership owning natural gas lease rights, there are still significant differences. I am hoping to start a discussion regarding the issues involved with a Marcellus shale lease rights valuation, because I see great need for these services in the very near future.

 

I beleive an open discussion will help with the general education of every party involved and lead to the best services being supplied to the people that would benefit most.

 

Please comment if you have performed these types of valuations or have thoughts on the process.

 

Some of the items that I hope to discuss are:

- documentation for the discounts taken in the valuation of a limited partnership interest (is there transactional guidance?)

- applicability of data (either valuation or transactional) from other shale reserves (Barnett for example) to the marcellus shale reserve

- general thoughts on the valuation process

 

I don't have definitive answers, but I do have thoughts on the issue that I will share.

 

I appreciate any comments and have a great day!

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Permalink Reply by T. Eric Blocher on May 25, 2011 at 8:37am

I think we have mixed apples and oranges.  The Geologic research and understanding of the similarities and differences of Marcellus shale compared with other plays (ie Barnett) are all VERY important factors. These need to be considered in a quality appraisal of the lease rights. They help determine an estimate of the value of those rights.  Once that value is determined and a Limited Partnership is established which owns those lease rights, the issues I discussed come into play and center around the valuation of the limited partnership interest which owns the rights.  There is a difference between owning the land and owning a non controlling portion of an entity which owns the land.

 

I think the methodologies I spoke about can be used in areas of speculation and where there are proven wells.  I am not suggesting that anyone ignore sound geological reasoning and was assuming that it is present in the appraisal supporting the assets owned by the LP.   

Permalink Reply by daniel cohen on June 15, 2011 at 4:13am

Dear FXEF,

Perhaps I'm way wrong here, but it seems as if the conversation so far is focused into pretty strict specifics of  particular points of interest revolving about the valuations  for limited partnerships. Your question goes to the much broader issue of LLC's. Although I personally appreciate that thread, I wonder if it does a service or disservice to the discussion as a whole?

Dan

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