Mineral Property Rights and Surface Property Rights
Two types of rights are associated with minerals like oil and gas: mineral rights and surface rights. Mineral rights valuation pertain to the unseen value of the property. In other words, the minerals that lie within the land are subject to mineral rights. The surface rights, on the other hand, means the owner of the surface of the land has limited input as to whether oil or gas is produced from underneath the property. Knowing whether or not you have mineral rights or surface rights to your property can make a huge difference in the amount of property taxes that you have to pay concerning an oil well valuation. One of the key elements that you should evaluate when evaluating your tax assessment is whether the assessor assessed your property with the appropriate rights. If the assessor assessed your property as if you had mineral rights when you only have surface rights, then you could end up paying significantly more in property taxes that you really have to.
Mineral Interests & Property Taxes
The energy industries can be quite lucrative, but with that profitability come the possibility of huge property taxes. Oil and gas are arguably two of the natural resources that can most negatively impact property taxes. Counties levy taxes on minerals according to their value. However, mineral rights valuations are much more complicated processes than some people realize, and some property owners might end up having their property taxes overassessed because of the mineral taxes they face and could face bankruptcy.
Discounted Cash Flow Calculation
Mineral interests like oil and gas are classified as real property, so their taxes are based upon their fair market value appraisals. The fair market value of oil and gas wells is generally calculated by subtracting the estimated cash flow that the resources bring to the property from the future production of the resources. The process used to determine the fair market value of oil and gas wells is referred to as the discounted cash flow calculation. The discounted cash flow calculation is designed to reflect all the following elements pertaining to mineral rights valuations:
- Income and other taxes
- Capital investments
- Royalty interests not retained by producer
- Operating and maintenance expenses
- Other pertinent costs
Assessment Technologies Can Help
Assessment Technologies law experts can help you ensure that you don’t pay more for oil and gas on your property taxes than you have to. Professionals know how to check your assessments for errors or inaccuracies and then how to appeal your oil well valuation to get you a reduction in taxes.