RE: 3x Cash Flow for ED30 Oct 2019 17:16
Spear, 60 times monthly revenue is possible as is 2 times. Nobody knows. This gives a ballpark figure I believe.
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......
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
https://www.stout.com/en/insights/article/valuation-oil-and-gas-properties-are-they-really-worth-3x-cash-flow/