In right of way acquisition, the state does not acquire oil, gas, or sulfur. However, it may be necessary to purchase the improvements used to remove such minerals from under the surface, such as an oil well, pumping equipment, gathering lines, etc.

If a parcel acquisition will impact active mineral production, the key challenge becomes estimating the value of the remaining oil reserves. This usually involves the services of a technical expert.

In some instances, it will be found that the market value of the remaining oil reserve is less than the cost to re-drill a well. Since oil reserves are gradually depleted, an older field may have little value in comparison to the cost to drill a similar well. If the value of the remaining oil is less than the cost to drill a new well, the approved value will be limited to the lower amount. If the oil reserves indicate a value more than the cost of a new well, then the approved value will usually be limited to the cost to drill a new well.

While it is not the most appropriate way of estimating value, some technical experts may use the method of estimating overall net value by estimating total production and total expenses. If this method is used, the appraiser should be careful to discount the net income for the remaining life of the well located within the acquisition. Included in the expenses should be the cost to plug the well at the end of production and an investment management expense in addition to an expense for supervising the pumping facilities.

In most cases, oil well pumping equipment is considered personal property and has a definite value when removed from the site. Whether it is classified as personal property or realty will depend on what is done in the subject’s market area. If it were customary for a well to be sold with the pumping equipment left in place, then it would probably be considered as a realty item.

Since it is necessary for a portion of the well casing to remain in place for plugging the well, the seller should not be permitted to retain this part of the casing, in conformance with Texas Railroad Commission regulations.