Email of the day (2)
“What would you use to project 30 years of rural property prices going forward if you had good data:
“Apart from interest rates and Ag commodities, what would you use.
“Or how would you address it in your country as would be similar methodology?
“I am trying to project rural prices in Qld Australia in CSG mining areas which produce gas for 30 years and reward property owners based on valuation projections. ”
Eoin Treacy's view Thank you for this question which is an area we are not particularly familiar with. European governments generally retain the mineral rights on property regardless of who owns it, so we are presented with a situation quite different to that in Australia and North America. In order to gain some additional intelligence I contacted a subscriber whose wife has land in Texas which sits on top of a shale gas and oil region and asked for his input. Here is his generous response:
As to your nat gas question, my wife has been approached a number of times to sell all or a portion of her mineral rights. As the evidence of viable reserves has mounted, the offers went up (quite substantially). I believe the issue for your subscriber hinges on the level of certainty that the reserves exist, and the quantity that can be extrapolated as being able to be captured, generally based on production nearby. In addition, we have found that Texas oil and gas regulations require pooling of land to ensure fairness to all owning the land from which the gas is being extracted. I do not have knowledge of Australian laws, but as an example my wife's property is a small part of a pool of some 1,000 acres. My best effort would involve a present value of a future stream of income, with assumptions on the price of an mcf of nat gas, as well as how much gas can reasonably be captured . Finally, my wife's property was essentially worthless until the technology of "fracking" evolved, and made reserves not previously able to be extracted at a profit suddenly of great interest to oil companies.
There are no doubt many, many other factors -- some unknown and unknowable. There is obviously the technique of utilizing the value of nearby properties that have sold recently, but that doesn't seem to address current values accurately. It would seem to be a very complicated problem that ultimately ends with "it's worth what someone will pay for it". The leader in the area of my wife's property is EOG Resources, and they have made a strong case (based on their stock price) for the value of very large blocks of land with nat gas reserves, some proven and others more speculative. Sorry I'm not more help, and I'm happy to talk through this in more detail at your convenience.
If other subscribers with knowledge of this area would like to share their input I would be happy to post it. The global natural gas industry remains on a growth trajectory but pricing is likely to ebb and flow with perceptions of economic growth.