How this calculator works
Royalty buyers value a stream of checks the same way any income asset is valued: project the income forward, shrink it each year for production decline, and discount every future dollar back to today at their required return. This tool does exactly that — year-one income (optionally net of ~7.5% severance and ad valorem taxes) declining annually, discounted mid-year, over your chosen horizon.
The two assumptions that move the answer most are the decline rate and the discount rate. A new horizontal shale well can decline 25–50% in its early years before flattening; a decades-old conventional well may decline only 3–8%. Professional buyers typically demand 10–20% returns, which is why their first offers so often land near three to four times annual income — the low end of the rule-of-thumb range.
This is an estimate, not an appraisal. A real valuation prices each well from engineering data, basin type curves, undrilled locations, and current strip prices. Before selling anything, read the royalties guide and get competing bids — first offers on royalties are routinely low.
Three ways people use it
- Royalty owners weighing an offer — enter your checks and the offer; the verdict line tells you where the offer sits against the discounted value of your assumptions.
- Investors evaluating a royalty purchase — work backwards: what price would deliver the return you require at a realistic decline rate?
- Heirs sizing an inherited interest — a fast first read on whether an inherited mineral interest is worth professional valuation.