A change from one year to the next for any single parameter or a combination of these parameters can affect the calculated recoverable reserves and the corresponding market value from one appraisal year to the next. Unlike real estate appraisal, all wells (mineral interests) are re-appraised annually.
Unsolicited offers to buy your interest/s do not constitute an open market transaction because they do not meet the guidelines of Market Value according the Property Tax Code. They are more than likely overly conservative so as to guarantee the buyer a more–than-reasonable profit. Therefore, unsolicited offers are invalid for market value purposes and are not persuasive evidence during protests. Unlike the market value real estate appraisal parameters for your homestead that basically remain the same (square footage, condition, etc.); these lease parameters can change drastically from one year to the next.
Because of the constant parameter change, each lease is individually re-appraised each year as of January 1 using the “known” lease information at that time point in time. Lease changes after this date will be used in the next year’s appraisal. Each year’s appraisal stands on its own.
Non-producing mineral interest are those interests without producing/completed wells. Reserves can not be calculated without production using the Discounted Cash Flow. Therefore, the absence of capable to or actual production renders these non-producing interests valueless for property tax purposes. The completion date listed on RRC form W-2 or G-1, Box 14, distinguishes a non-producing property from a producing property. It is this date’s relationship to the State mandated January 1 assessment date for appraisal purposes, not the test date.
Shut-in wells are generally temporary for well work or because of drilling in a close proximity. This can last as long as six months or longer. You may receive a shut-in check from your operator, however, this is usually their procedure because additional well drilling on an existing pad. It does not mean the well will never produce again.
The shut-in status does not affect the calculated reserves and their value since you can still sell your interest in these reserves; it just delays the recovery of those reserves. See Terms page 12.
Production and well data is available to the public at the Texas Railroad Commission (RRC) website. The majority of this information is listed at http://www.rrc.state.tx.us/ and the various links listed there.
How can I determine if the proposed market value is valid?
The valuation of mineral interests for property tax purposes is NOT a tax on prior income. Market value is NOT supposed to represent your prior annual income. An owner completed “Payout Calculation” is your litmus test of validity – Using your prior calendar year’s 12 month income, you can calculate whether the proposed market value is in line with current market conditions using a Year’s Payout. This calculation is a reversionary calculation of known information. It is used industry-wide as a quick test of relevance.
The “Payout Calculation” requires the prior calendar year’s income, such as Federal form 1099-MISC or your monthly income receipts from all purchasers, all income streams of oil and/or gas, totaled for the calendar year. (If your lease did not produce for all 12 months, you must extrapolate an estimated 12 month in come-you cannot compare a partial year’s income to a full market value).