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How We Determine the Value of Your Interest

The value of your interest is dependent on the following factors:


1) Production – 
What is the current production of the well and how steeply is this production declining? A well that has a high production rate and a low annual decline will be worth more than a well with low production and a steep decline.

2) Pricing – 
What is the current price received for the oil and/or gas sold from the well? We can generally see these numbers from a check stub. The higher the price that is received for the products, the higher the value of your interest.

3) Monthly Operating Costs – 
Even though an overriding royalty interest and a royalty interest do not pay monthly operating expenses, an estimation of this number will be determined. The reason behind this is an operator will plug a well when the monthly operating costs exceed the monthly net revenue. This is termed the economic life of a property, and we can determine this number. For example, a well that has only 3 years of economic life remaining will be worth less than a well that has 7 years of economic life remaining.



4) Severance Tax – 
The amount of severance tax paid affects the value of your interest. Every State has a different severance tax rate. The higher the severance tax rate, the lower the value of your interest. If you would like to know the severance tax
rate for your state, please contact us and we can provide you with that number.

5) Pipeline & Transportation Deductions – 
If your lease allows for the deduction of pipeline and transportation fees, this will be accounted for in the determination of value for your interest. The higher the pipeline and transportation fees, the less your interest is worth. Ideally, you want to see no deduction for pipeline and transportation fees, as this increases the value of your interest. If you are not sure whether you have deductions for these fees, please contact us and we can assist you.

6) Economics – 
All of the factors listed above are entered into our economics program. This program calculates the value of your interest. If you would like to see a sample of an economic run, please contact us and we can mail it to you.

We hope this discussion has helped you to see how we go about calculating the value of your interest. If, however, we have not answered one of your questions, visit our Frequently Asked Questions Page or contact us and we will be happy to answer your question.



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