What’s the Fair Market Value of Royalty Interests in Oil and Gas Deep Rights?

Calculating un-drilled (non-producing) royalty interests in oil and gas deep rights for people gifting them to kids or to value estates can be a challenge. For many, there is the belief that these “can’t be worth anything.” Fortunately, these people will find that the accounting experts at Appalachian Basin CPAs, Inc. in Ohio have a true understanding of their position. The Pennsylvania Department of Taxation is sending letters to taxpayers that have had a real estate transfer, inquiring as to the increase in value of what they have transferred. If there hasn’t been any drilling done or additional expense put into the property, then no, there has been no increase in its value. However, that doesn’t mean what was transferred doesn’t have a fair market value.

The term fair market value is defined in Revenue Ruling 59-60 as follows:

“…as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.  Court decisions frequently state in addition that the hypothetical buyer and seller are assumed to be able as well as willing, to trade and to be well informed about the property and concerning the market for such property.”

Source: Appalachian Basin CPAs, Inc

The skilled and knowledgeable experts at Appalachian Basin CPAs, Inc. have been involved in a significant number of private transactions dealing with oil and gas deep rights within Pennsylvania and Ohio that have in turn, helped them come up with the answer. Upon using these transactions, as well as the ones that have been published, they have come to believe transactional data is the best way to arrive at a fair market value for these royalty interests.

Appalachian Basin CPAs, Inc.
213 Market Avenue North
Canton, Ohio 44702
330.437.1182
http://www.abbacpas.com/