The Oklahoma Bar Journal May 2024

with a most common lease bonus of $1,200 would be evaluated to have a fair market value (and attributable resource value) of $48,000. A similar never-leased mineral interest in another county, how ever, with a most common lease bonus of $25 per acre, would be evaluated to have a fair market value (and attributable resource value) of $1,000. For the calculation of fair market value of open mineral interests, providing accurate documentation of the number of net mineral acres is especially important. It is not uncommon for mineral interests to be acquired through estate and familial distribution leading to divisions into smaller and smaller interests and for transfer documents to be silent in regard to the number of net mineral acres being trans ferred. Locating and providing this information can require additional work but can prove worthwhile. For example, if the 40-acre min eral interest in the county with the $1,200 lease bonus was actually inherited by and divided equally among 10 heirs, this would reduce the number of net mineral acres to four each and consequently reduce the applicant’s associated resource value to $4,800 rather than $48,000. Important documentation required for pathway 2: documentation that contains the legal description of the mineral interest, inclusive of the num ber of net mineral acres. Presenting accurate information regarding the number of net mineral acres is espe cially important for accurate valuation in this type of interest. Pathway 3 – The Leased Mineral Interest Valuation Formula Fair market value = (gross lease bonus x 1.5). For leased mineral interests, as a general rule, the fair

market valuation formula is the product of 1.5 times the most recent lease bonus. (The agency might retain the ability to exercise some discretion in contemplation of the occurrence of a zero-dollar lease bonus, though this has not been well established as of the writing of this article.) In general, a mineral interest wholly owned by an individual applicant most recently leased for $1,600 would be evaluated to have a fair market value (and attributable resource value) of $2,400. The 6%/$6,000 resource value exclusion does not apply to min eral interests that are leased but have never paid royalties. Important documentation required for pathway 3: documentation that lists the legal description of the min eral interest and the Form 1099 issued by the oil company in the year the lease bonus was paid. A Road Less Traveled – The Life Estate Impact Valuation Formula Fair market value = (full resource value x life estate decimal amount). Notably, if an applicant owns only a life estate in a mineral interest, the evaluated fair market value is reduced by a specified formula multiplying the fair market value of the mineral interest by the decimal amount listed for the age of the applicant in accordance with the State Medicaid Manual – Life Estate and Remainder Interest Table. 6 For example, if Ms. Jones, age 78, owns only a life estate inter est in an open mineral interest that would otherwise have a fair market value of $10,000 and the corresponding decimal amount for age 78 is 0.47049, the resulting resource value for this interest would be $4,704.90.

a single mineral interest wholly owned by an individual applicant documented by a Form 1099 to be producing royalties of $1,200 in the most recent year would be viewed as having a fair market value of $3,600 ((gross royalties/12) x 36 = fair market value) but would result in an attributable resource value of $0 due to the 6%/$6,000 exclusion for nonbusiness income-producing property. On the other hand, a single mineral interest wholly owned by an individual applicant doc umented by a Form 1099 to be producing royalties of $4,000 in the most recent year would be viewed as having a fair market value of $12,000 and an attrib utable resource value of $6,000 (assuming no other nonbusiness income-producing property con tributed countable income toward the $6,000 exclusion limit). Important documentation required for pathway 1: documentation that contains the legal description of the mineral interest, the Form 1099 issued by the oil company in the year preceding the client’s application or the year preceding the annual review and documentation of any royalties currently held in suspense. Pathway 2 – The Open (Unleased) Mineral Interest Valuation Formula Fair market value = (most common lease bonus per acre x number of net mineral acres). On the other hand, for open (unleased) mineral interests, the fair market value is determined by multiplying the number of net mineral acres and the most common lease bonus for the county as reported by the corresponding issue of the U.S. Lease Price Report. For example, a 40-net-mineral-acre interest that has never been leased in a county

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

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THE OKLAHOMA BAR JOURNAL