Petroleum Property Income and Market Valuation Approaches (Transactions Beware

Abstract

Characteristics exhibited by producing liquid-rich shale formations often cause inaccurate forecasts of natural gas and oil production when multistage hydraulic fracking is used for extraction. Poor cash flow estimates can be avoided by practicing due diligence when appraising petroleum property value and income. Due diligence is satisfied by comparing volumes recorded on actual royalty check stubs or monthly statements to state-reported production volumes, by relying on petroleum reserve appraisals instead of transaction multipliers or rules of thumb, and by using nearby analog wells in proximity found in subscription databases for good “type” well decline curves. In addition, properly referencing the contributing work of other appraisers, maps, and analyses improves understanding and reduces errors.