Value Beyond the Surface: Part II

This post is part two of a two-part article from LandGate. It originally appeared in the Winter 2021 issue of Terra Firma magazine. Click here to read part one.

Resource Values & Deals

Solar

Landowners can now potentially earn millions of dollars from lease options, rental payments, and cash bonuses paid by solar developers. In some examples, a property owner with 40 acres can generate a total of $1.2 million dollars over the life of a utility scale solar project, but may have settled for 10-20% of the property’s resource potential by falling prey to competitive leasing tactics. Successful solar lease negotiations are defined by the property owner and developer reaching an agreement that is advantageous for both parties in the long term. The best way to reach an agreement is with a more transparent leasing process and by providing access to solar rights data, valuations, and expertise to real estate agents.

The important value drivers for solar on a specific property include:

• State and local credits and subsidies to developers
• Local marginal prices and nearby demand
• Nearby existing grid connection sites such as transmission lines and substations
• Solar irradiance
• Topography of the surface
• Buildable area (removing flood zones, forestry, dwellings, etc.)
• Network intake capacity

Wind

Wind leases function very similar to solar, with the exception that it is often possible to exploit both wind and oil and gas simultaneously, giving energy companies additional options. Unlike solar, wind can be exploited in various terrain conditions.

The important value drivers for wind development on a specific property include:

• Nearby existing grid connection sites (transmission lines, sub-stations)
• High average wind speeds
• Credits and subsidies to developers in specific states
• Spaces that are away from heavy residential areas to avoid noise and viewpoint damage

Beyond the energy markets, there are additional resources to consider such as water, mining, cell towers, agriculture, and recreation. The reality is that land resources impact the value of land and create additional opportunities for real estate agents to monetize on the transactions involving these property rights.

Marketing these land resources to specialized buyers, which include energy companies, involves a specialized skill and network. New and exciting platforms, such as LandGate, do all of the work for the agent and allow the agent to control the deal.

Oil and Gas

One of the more profitable energy resources derived from land would be oil and gas minerals. It is important for land agents to understand the potential of oil and gas development on the property, its value, and whether or not the mineral rights are part of the transaction. The property owner also has the right to sell the surface and retain the oil and gas mineral rights. The mineral owner has the right to use the surface in a reasonable manner to extract the minerals or lease those rights to an oil and gas operator, making these rights much more important than many realize.

The important value drivers for oil and gas on a specific property include:

• Location – value can change quickly over a mile
• Commodity prices and market conditions
• Type of ownership
• Operators activities and plans:
  • Existing production on the property
  • Horizontal development or permitting on or near the property
  • Is the owner receiving royalty checks
  • Is the owner receiving offers from mineral buyers/lessees
  • Is the owner receiving drilling notices or force pooling notices

Marketing Evolution & Future Opportunities

Land Resource Values Continuously Change

Technologies, developers activities, commodity prices, market conditions, costs, and subsidies change very rapidly in the energy sector. As a result, the valuation of land resources changes frequently. Real Estate agents need to have the latest information about activities and values at their disposal to inform their clients and leads.

Most states have energy divisions where people can painstakingly glean information about leasing activity, development, permits, and additional information. The process involves finding the specific division for the resource type, locating specific tracts, compiling documents, and researching the current activity.

LandGate and other companies work to compile data from major land resources across the U.S. and make them easily accessible and available for more efficient and profitable transactions. Agents need land resource experts to be able to manage these transactions.

Conclusion

There are big opportunities for land agents in today’s market and even more in tomorrow’s. Land resources are very complex, and it has been very difficult for landowners and their real estate agents to realize the full value of this very large market. Data and evaluations about land resources have been accessible only to large energy companies.
It is amazing how little information landowners still have about the resources sitting on or beneath their property. It creates an incredible opportunity for agents to assist these clients and access the full potential of multimillion dollar transactions in land resources. Agents need land experts to help them transact on land resources.

The future is bright for land real estate agents as the growing demand for energy is likely to increase the value of land significantly, as long as they manage to reap the benefits of this value. The industry will continue to see innovation providing the ability for agents to earn more income while helping landowners maximize their profits. The agents who have access to the tools needed to transact on land resources will be the ones that landowners will trust with their large, revenue generating, land assets.

About the Authors

Eric Thompson is the Vice President of Business Development at LandGate, an online marketplace for land resources. Since entering the oil and gas industry in 2015, he has handled over $300 million in asset transactions. Eric holds both graduate and undergraduate degrees and lives in Houston, Texas.

Dan McCue is Vice President Land at LandGate. He has been a successful Oil and Gas Land Professional for 40 years. He is an adjunct professor and twice-published author with The University of Texas at Austin’s Petroleum Extension (PETEX).

Yoann Hispa is CEO and co-founder of LandGate. Yoann has 17 years of experience in the energy industry doing billions of dollars in valuations, acquisitions, divestitures, and development projects in leadership and technical roles. Yoann holds an Executive MBA, three Masters in Engineering and Geoscience, and a BSc in Math.