Valuing oil and gas properties held by individuals or estates at three times (3x) annual cash flow (“3x Cash Flow”) has been a widely used rule of thumb for decades. More sophisticated users of the rule might apply it only to working interests and apply a higher (say 5x) multiple for royalty or overriding royalty interests (“ORRIs”). The convention is to simply multiply the trailing 12-month cash flow figure generated by the subject property or collection of properties by three (3) and the result presumably represents the market value of such properties. Numerous CPAs and attorneys have filed estate or gift tax returns using this methodology. Furthermore, many bank trust departments regularly use this methodology when valuing oil and gas properties.
Because the approach is so simple and avoids petroleum engineering or appraisal fees, it is widely used, particularly for smaller, nominal properties. However, this rule of thumb is often applied in situations beyond its useful bounds and can result in conclusions that differ dramatically from the actual market value of the subject properties.
The Likely Origin of the 3x Cash-Flow Rule of Thumb
- 5X the Cash Prizes and Odds. These are the prizes you can win on 5X the Cash, plus the odds of winning. Each ticket is eligible to win a percentage of the jackpot, plus a variety of instant cash prizes based on how many numbers are matched. If the 2X or 5X Multiplier is printed on the ticket, non-jackpot prizes are multiplied two or five times.
- Play Fantasy Cricket Online & Win Real Money. Tap on Fantasy tab or the banner. Join a Contest Choose from free or paid contests. You can win Paytm Cash with either of them depending on your skillls. Create Your Fantasy Team Players from both the teams have certain points.
The 3x Cash Flow rule probably gained significant traction decades ago in oil- and gas-producing regions like Texas and Oklahoma where legacy oil fields had relatively predictable declines. Property buyers probably set the acquisition standard based on their expectation of field declines, and their desire to create some margin for error (not having sufficient time or resources to perform detailed due diligence) as well as earn a spread for making a market in the interest. As the interests were passed down through family lines and further fractionalized, the cash flows were likely less material and the sellers often not sophisticated enough to know whether they were receiving Fair Value for their properties.
The Impact of Technology
Technological advances in recent decades have increased the value of oil and gas properties. The combination of horizontal drilling with hydraulic fracturing have unlocked the enormous “shale” plays – the Barnett Shale in the late 1990s/early 2000s and more recently the liquids-oriented Bakken/Three Forks and Eagle Ford Shales during 2009 and 2010. This and other technology has breathed new life into legacy oil- and gas-producing regions in the U.S. Also, the advent of the auction houses such as EnergyNet, Inc. (“EnergyNet”) or The Oil and Gas Asset Clearinghouse have increased the efficiency of the market for oil and gas properties resulting in higher values. Real money pokies.
Top Prize: $10,000. Ticket Price: $1.00 Start Date: 4/7/14. Here's How to Play This ticket will feature one (1) game play. The player gently removes the latex covering the play area to reveal two (2) WINNING NUMBERS and five (5) YOUR NUMBERS, with a prize amount below each of the YOUR NUMBERS play symbols. As of January 2014, prizes for winning tickets with the Power Play add-on are subject to a 2x, 3x, 4x, or 5x multiplier, selected at random before each drawing. For instance, a $4 prize would become either $8, $12, $16, or $20 with Power Play. This option costs $1 extra.
Potential Distortions in Valuation
Sophisticated buyers and sellers of oil and gas properties know that there can be significant value attributable to non-producing properties. Use of the 3x Cash Flow multiple applied to a collection of producing and non-producing properties implicitly gives little or no value to the non-producing properties. Consider a 1,000 acre mineral tract in the Eagle Ford or Marcellus shale that has been producing cash flow of approximately $100,000 per year from a non-shale depth. Under the rule, the minerals would have an implied value of $300,000. A closer examination might show that the property has significant upside potential related to the shale play and that the lease bonus on the shale depth minerals alone might approximate $2,500 to $5,000 per acre or $2.5 to $5 million on a 1,000 acre tract. Clearly, the magnitude of such a lease bonus (and the expected royalty cash flow stream from future production) implies a substantially higher value for the property than the rule of thumb approach
Market Data
In a recent issue of Oil and Gas Investor, Bill Britain, the president and CEO of EnergyNet, reported that cash flow multiples on royalty and ORRIs auctioned from January 2007 to June 2010 ranged from a low of 54 months (4.5x annual cash flow) for Gulf Coast properties (typically, short-lived properties), to about 90 months or higher (7.5x annual cash flow) for Permian, Mid-Continent, and ArkLaTex properties. The properties sold at auction are typically broken into the lowest definable strategic unit and are therefore undiversified and do not include a non-producing component. Mineral portfolios that have upside potential through significant non-producing acreage positions typically trade at higher valuation multiples. In March 2010, Dorchester Minerals, LP, acquired a diverse collection of producing and non-producing royalty and mineral properties (the Maecenas properties) located in 206 counties in 17 states (mostly Texas and North Dakota) at about 11x annualized cash flow.
Conclusion
Use of the 3x Cash Flow rule of thumb could grossly understate value if the subject property base includes a significant amount of non-producing minerals and especially if those minerals have significant known upside potential (located in or near an active shale play, for example). For smaller properties where engineering studies are not available, the auction house data on specific transactions is useful for valuation purposes, but such data is not publicly available and is difficult to obtain. Ultimately, the location and other characteristics of the subject properties (type of interest – royalty vs. working, diversification by geography and by operator, ‘upside’ potential, and years of production history) should be considered in the valuation of the subject properties.
Categories:£1 Scratchcards|Published by: Lotto Scratchcards
![How To Play 5x The Cash How To Play 5x The Cash](https://i.ytimg.com/vi/N82LCIsj0ak/maxresdefault.jpg)
RELEASE DATE: SEPTEMBER 2020
SCRATCHCARD NUMBER: 1224
JACKPOT PRIZE: £10,000
NUMBER OF JACKPOTS: 8
OVERALL ODDS OF WINNING: 1 in 4.34
NUMBER OF SCRATCHCARDS IN INITIAL RUN: 17,234,280
SCRATCHCARD NUMBER: 1224
JACKPOT PRIZE: £10,000
NUMBER OF JACKPOTS: 8
OVERALL ODDS OF WINNING: 1 in 4.34
NUMBER OF SCRATCHCARDS IN INITIAL RUN: 17,234,280
How to Play 5X 20202 Scratchcard
There are 6 chances to win on this scratchcard.
Reveal the symbol underneath each of the ‘£’ symbols.
If you find one or more ‘roll of cash’ symbols, you instantly win the corresponding prize.
Reveal a ‘2X’ symbol to win double the corresponding prize, or reveal a ‘5X’ symbol to win 5 times the corresponding prize.
Players can win up to 6 times per scratchcard!
Official Game Rules
Check 5X 2020 Scratchcard
Are you having trouble understanding the rules of the 5X 2020 scratchcard? Or do you just need to double check your scratchcard? Use our ‘Check Your Scratchcard‘ article for more information, or get in touch with us.
Relevant news
£100,000 Pink Scratchcard
RELEASE DATE: NOVEMBER 2020SCRATCHCARD NUMBER: 1229JACKPOT PRIZE: £100,000NUMBER OF JACKPOTS: 10OVERALL ODDS OF WINNING: 1…
How To Play 5x The Cash
read more +Cash Cracker Scratchcard
RELEASE DATE: OCTOBER 2020SCRATCHCARD NUMBER: 1239JACKPOT PRIZE: £10,000NUMBER OF JACKPOTS: 5OVERALL ODDS OF WINNING: 1…
read more +Win £50 Scratchcard
RELEASE DATE: APRIL 2020SCRATCHCARD NUMBER: 1134JACKPOT PRIZE: £50NUMBER OF JACKPOTS: 8,113OVERALL ODDS OF WINNING: 1…
read more +Quids In Scratchcard
RELEASE DATE: MARCH 2020SCRATCHCARD NUMBER: 1210JACKPOT PRIZE: £5,000NUMBER OF JACKPOTS: 5OVERALL ODDS OF WINNING: 1…
read more +£100,000 Multiplier Orange Scratchcard
RELEASE DATE: MARCH 2020SCRATCHCARD NUMBER: 1180JACKPOT PRIZE: £100,000NUMBER OF JACKPOTS: 12OVERALL ODDS OF WINNING: 1…
read more +Cash Match Scratchcard
How To Play Pa Lottery 5x The Cash
RELEASE DATE: MARCH 2020SCRATCHCARD NUMBER: 1155JACKPOT PRIZE: £10,000NUMBER OF JACKPOTS: 5OVERALL ODDS OF WINNING: 1…