How Texas Values Your Producing Minerals for Property Tax: The Chapter 23.175 Process Explained

Picture a family in North Texas opening a property tax notice in late April. Their inherited fractional royalty interest has been producing a steady but modest annual royalty stream. The appraised value on the notice is several times higher than the best direct-buyer offer they received last fall. The gap between the taxable number and the market number is not a mistake. It is the output of a specific statutory formula that the county appraisal district (CAD) is required to run, using inputs the property owner has almost no say in. Understanding that formula is the difference between writing the check for a value you do not owe and protesting successfully on grounds that the appraisal firm will actually recognize.

Texas Tax Code Chapter 23, Subchapter F governs the appraisal of "interests in oil and gas." The central provision is Section 23.175, which requires the CAD to value producing mineral interests using the income approach — a forward projection of production and revenue, reduced to a present-value number using factors the State Comptroller publishes annually under Property Tax Rule 9.4033 (34 Texas Administrative Code §9.4033). Unlike surface real estate valuation, there is no adjustment for comparable sales. The statute does not care what a buyer would actually pay; it cares about what the appraisal formula produces. In most years the two numbers are reasonably close. In years where oil or gas prices have moved sharply, or where a well has declined faster than the appraisal firm's forecast expected, they can diverge substantially — and that is when protests pay off.

Most Texas CADs do not have petroleum engineering capacity in-house. They contract mineral appraisal to specialized third-party firms that run decline-curve analyses and reserve models at scale across hundreds of thousands of interests per county. The three firms that dominate the work across the state are:

Pritchard & Abbott (Fort Worth) — the largest mineral appraisal firm in Texas by CAD-contract count, with particularly heavy presence across West Texas, the Permian Basin, and the Panhandle. If your producing minerals are in Reeves, Loving, Midland, Howard, or most of the Delaware and Midland basins, Pritchard & Abbott almost certainly performed the appraisal.

Capitol Appraisal Group (Austin) — widely used across the state, including in the Eagle Ford and across central and south Texas. Capitol's coverage overlaps with the other two firms in many regions.

Thomas Y. Pickett & Co. (Fort Worth) — historically the largest of the three by staff count; heavy presence in East Texas, the Gulf Coast, and many Panhandle counties. Long-standing contracts with a number of rural CADs that have used the firm continuously for decades.

A handful of other firms — Wardlaw Appraisal Group, and a small set of regional specialists — handle remaining coverage. A few large producing counties (Midland among them) maintain in-house capacity for portions of their workload but still contract out complex or lateral-well interests. Whichever firm performed your appraisal is named on the notice of appraised value, along with a contact address and usually a phone number. That name tells you who you are actually negotiating with on informal review.

The income-approach calculation under §23.175 has four moving parts, and every protest-worthy argument targets one of them.

Reserve forecast. The appraisal firm fits a decline curve to the well's historical production — typically exponential or hyperbolic depending on the well type and vintage — and projects remaining recoverable volumes out over the well's economic life. For horizontal wells in the major resource plays the firm usually uses a hyperbolic curve early and transitions to exponential after a chosen switch point. The result is a year-by-year production forecast that drives every subsequent calculation.

Price input. Year-one revenue uses the "preceding calendar year" average posted price for the applicable grade of oil and gas, pulled from the Comptroller's annual pricing schedule. Outer-year prices are held flat or adjusted within the statutory range — they are not set by a commodity forward strip. A January 1, 2026 valuation uses calendar-year 2025 averages as its starting price input.

Cost deduction. For working-interest owners, a projected per-BOE operating cost is deducted from each year's revenue. Royalty owners have no operating-cost deduction — their projected revenue is gross. The applicable cost estimate varies by basin and well type and is typically drawn from the firm's in-house database of regional benchmarks.

Present-value factor. Annual net cash flows are brought back to present value using the factors specified in Rule 9.4033 for the tax year. The factors are set by the Comptroller, not the appraisal firm — the owner does not choose them, and the CAD does not either. The sum of those present-valued annual cash flows is the appraised value that appears on the notice.

Economic-life truncation cuts the forecast off when projected net revenue reaches zero or a minimal threshold. For a late-life well that is near its economic limit, this truncation is sometimes the single largest lever in a protest.

Three structural features of §23.175 can make a taxable value exceed what the minerals would actually sell for in the current market. Understanding them is the key to a productive protest.

First, the price lag. The statute requires use of the prior calendar year's average posted price. In a falling-price year — 2020 during the early pandemic collapse, 2015 during the shale price crash, 2009 during the financial-crisis bottom — spot prices are well below the prior-year average that the CAD is required to use. Taxable values in those years can sit substantially above what a willing buyer would pay. The price lag works the other direction in a rising-price year; in 2022, for example, statutory taxable values built from 2021 averages understated current market because spot had moved up faster than the statutory input. The mechanic is neutral across cycles, but in any given year it can favor either the taxing unit or the owner.

Second, decline-curve optimism on older wells. Reserve forecasts are fit to historical data, and firms typically update curve parameters on an annual cycle. A well that has declined faster than the prior-year forecast — because of an unexpected pressure drop, a mechanical issue, or simply geology behaving worse than the curve suggested — will show a taxable value built from a forecast that has not caught up to reality. For older Texas wells that have been producing for more than a decade, this is the most common basis for a successful protest. The appraisal firm will update the curve when presented with recent production data that falls below its projected path.

Third, economic-life assumptions. The statute requires truncation at economic limit, but the firm's default truncation year may assume the well keeps running longer than the operator would actually tolerate at current prices. For a working-interest owner with direct visibility into the operator's lifting cost, arguing for earlier economic truncation is sometimes a legitimate move — particularly on marginal wells in a soft price environment.

All three features argue the same way for a mineral owner whose appraisal looks too high: get the recent production data, compare it against the forecast the CAD implicitly used, and protest on the decline-curve or economic-life grounds where the forecast and reality diverge.

Every Texas CAD mails notices of appraised value in the spring, with a statutory protest deadline that is the later of May 15 or 30 days after the notice was mailed. The deadline is printed on the notice itself and varies by CAD. Missing the deadline forfeits the right to protest that year's value; you wait for next year.

The process:

Informal review with the appraisal firm. This is where most disputes resolve. The firm's contact information is on the notice. A phone call or email explaining the basis for the dispute — updated production numbers for a declining well, evidence of a shut-in, a posted-price error — will often produce a revised number without any formal filing. Appraisal firms are evaluated on their protest-resolution track record at the CAD contract level and generally prefer to settle informally where the owner's position has any merit.

Formal protest to the Appraisal Review Board (ARB). If the informal review does not resolve the issue, the owner files Form 50-132 (Notice of Protest) by the statutory deadline. The ARB is an independent panel that holds quasi-judicial hearings on contested valuations. The owner and the appraisal firm each present evidence. The ARB's decision is binding unless appealed.

Binding arbitration or district court. A final ARB determination can be appealed to binding arbitration for properties under the statutory threshold or to district court for larger values. Most mineral protests that proceed past the ARB go to district court; binding arbitration is more commonly used for residence-homestead protests.

The evidence that actually moves the number:

Updated production data showing a faster-than-forecast decline. This is the highest-yield argument for any well more than five years old. Pull your operator's monthly production from the Railroad Commission's public records and overlay it against what the appraisal implies. A well running 20% below the forecast path will typically produce a proportional reduction in taxable value.

Well-specific operating cost data for working-interest owners. If your lifting cost is higher than the firm's regional benchmark — because of water handling, deep completion, or mechanical complications — that information is persuasive at informal review when documented.

Evidence of economic limit. A well that has been shut in, or that is producing below the operator's realized lifting cost, supports an argument for earlier economic truncation. Operator correspondence and production records carry weight here.

Posted-price errors. Occasional, but worth checking — confirm that the grade of oil or gas used in your appraisal matches what your operator actually sells into. A West Texas Sour interest appraised at West Texas Intermediate will carry an inflated price input.

For interests with appraisals in the high five figures or above, retaining an independent petroleum engineer or mineral tax consultant is often cost-justified. For smaller fractional interests, the informal-review phone call is usually enough.

Read the notice in full, including the back side where the methodology summary and appraisal firm contact live. Note the firm's name and the protest deadline printed on the face. Pull your own recent production records (Railroad Commission PDQ is the public source) and compare the trajectory of actual production against what the appraisal implicitly assumes — if the CAD's forecast looks too flat relative to the actual decline, you have a protest case.

Decide whether the expected reduction is worth the time. A $10,000 appraisal at a combined 2.5% effective rate produces $250 of annual tax; even a 30% reduction saves $75 and is rarely worth a formal ARB hearing. At $100,000 of appraised value, the same reduction saves $750 annually and becomes worth a phone call and possibly a consultant. At $500,000 or more, the math almost always justifies a fully-prepared protest and professional representation.

If you do protest, start with the informal review. Request the appraisal firm's reserve report and curve parameters — under the Texas Public Information Act these are generally public records held by the CAD, and the firm can usually provide the underlying inputs on request without a formal open-records filing. Present the recent production data, the shut-in or economic-limit evidence, or the price-grade correction, whichever applies. If informal review does not resolve, file the Form 50-132 before the deadline to preserve ARB rights.

If your protest is really a question about whether to continue holding the interest at all — particularly common for inherited fractional royalties where annual property tax approaches or exceeds royalty income — consider whether a sale is the cleaner outcome. A recurring protest cycle on a small interest rarely pays off in total cost of ownership, and a one-time sale converts the interest to cash without the annual administrative friction. Our value-factors write-up covers the inputs we and other direct buyers use when building an offer, which is useful both for evaluating a sale price and for cross-checking whether a CAD appraisal is in a plausible range.

One related note for unleased Texas owners evaluating both a tax notice and a pending pooling situation: a MIPA application or an allocation well over your tract changes the production forecast the CAD will use in the next year's appraisal. That interaction is covered in our MIPA guide; the short version is that any significant change to a producing interest — first production, a new offset well, a shut-in, or entry into a pooled unit — should be reflected in the following year's appraisal, and if it is not, the notice is worth a protest call on that basis alone.