Valuation of Oil Royalties

[JohnnyM]

How, besides hiring an engineer, can you fairly value oil royalties? The tax roll numbers seem to be too low to be a fair value, and no one else can give me a decent answer, so to HornFans I come.

Don't want an engineer because it would not be financially feasible to hire one.

 

[Agent007]

Find a banker - when I was interning last summer, we had to value them several times for Canadian Royal Trusts which were takeover targets.

 

[Jellydonuts]

I don't know what your using the valuation for, but a rule of thumb has always been three times annual cash flow for a standard producing well. If this is a high pressure well, like in West Texas, you might discount this further (shorter life), or if it is a crappy low pressure well like in west Kansas, you might slightly increase the multiple. I am sure there are plenty of more detailed discounted cash flow models that are available on the Internet.