Wardlaw Appraisal Group

Mineral Interest Owners

This information sheet is provided to explain how your mineral interest has been appraised for Texas property tax purposes. Minerals are considered to be real property in the state of Texas. The appraised value for property tax purposes reflects as closely as possible the market value of the property (the lease) as of January 1 of each year. The appraisal is based on the future income from the lease and NOT on the past yearly income.

The mineral lease is appraised using the following information:

THE INITIAL PRODUCTION RATE FOR THE LEASE
Historical production, obtained from the Texas Railroad Commission, is used to project and determine an initial, January 1 production rate.
THE RATE OF DECLINE FOR THE LEASE
The rate of decline is calculated from the historical production data obtained from the Texas Railroad Commission.
THE PRICE OF OIL & GAS
The actual, non-weighted, daily average price received from a lease over the previous year is used. The price information is obtained from the Texas Comptroller of Public Accounts.
THE LEASE OPERATING EXPENSES (LOE)
Average operating costs for the area are used based on depth and number of wells. The initial costs are validated by Lease Operating Expense Statements submitted by the operators.
SEVERANCE TAX EXPENSE
Severance taxes are deducted from the yearly lease income.
THE CAPITAL EQUIPMENT VALUES
Salvage equipment values are added as a capital asset to the working interest value only. These amounts are based on the depth and the number of wells on the lease. All leases producing below the economic limit have an equipment salvage value only.
THE DISCOUNT RATE
A thorough analysis of rates used by banks which do oil and gas lending, acquisition funds which purchase oil and gas producing properties, and surveys of discount rate studies published by various groups, is performed each year to determine the discount rate used in appraisals.

Using all of the gathered appraisal information, we then project the future income from the lease and discount the future income over the lease’s economic life. The appraisal information is derived from and calculated as follows:

The future oil and gas production rates are calculated using standard petroleum engineering methods, primarily based on the extrapolation of historical production performance.
The future revenues are calculated by multiplying projected volumes of oil and gas sold times the appropriate prices.
The projected income (cash flow) is calculated by subtracting the projected operating costs and taxes from the projected revenue received on a year by year basis.
The annual projected cash flow is discounted at a rate determined by a thorough analysis of the market. The sum of the discounted future cash flow is the estimate of market value.

After the lease appraised values have been established, the values are then distributed to each mineral interest owner based on the type and percentage of ownership.

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