The recent crude oil sell off affect mineral owners in a number of ways. The technical analysis is not pretty and market is gearing up for more short term pain. How long will reduced oil prices be here for? No one knows for sure. After crude oil fell 4.6% yesterday, which was the biggest drop since 2012, it’s clear that there’s cause for concern. As a mineral owner, oil and gas prices can have a large impact on the value of your mineral rights. While there isn’t anything you can do about the prices, you can better understand how a crude oil sell off affects mineral owners and what you can do to respond.
Reduced Royalty Checks
One of the most immediate impacts for mineral owners are those that receive monthly royalty checks. If the royalties you receive are primarily tied to oil, the amount of your royalty checks will be immediately reduced as operators receive lower prices for selling oil, and in turn, pay royalty owners less royalties. If you are in a situation where you depend on your royalty checks each month, this can be a scary situation because you don’t have control over the amount of your checks coming in.
If you are concerned about the reduction in oil royalties you receive each month, you may consider selling all or a portion of your royalties. When you sell royalties, you are guaranteeing the amount that you receive up front so you don’t have to be concerned about what oil prices do and how it will affect your income. The value of your royalties is directly tied to oil prices, so when you sell royalties you take away a factor that can affect the value. If you’re worried about your monthly income, fill out the form at the bottom of this page and we’ll help answer any questions you may. If you want to sell royalties, we recommend listing them at US Mineral Exchange where you can quickly and easily get multiple offers from buyers.
Another thing to consider is that a long term reduced oil price could have a large impact on how much your royalties are worth. Selling royalties now could ensure that you get the highest possible value. When mineral buyers purchase royalties, they determine how much to pay you based on looking at past months of royalty income. If your royalty income decreases substantially over a series of 3 to 9 months, this will have a large impact on the total value you receive.
Selling Royalties today could net you a lot more money than selling in 3 to 9 months when you’ve received multiple checks at lower amounts.
Impact on Non-Producing Mineral Rights
If you have non-producing mineral rights, the impact from a sell off in crude oil will be less easy to see. However, a crude oil sell off affects mineral owners whether they have non-producing or producing mineral rights. As a mineral owner, you need to understand the impact that lower crude oil prices have on the value of your non-producing mineral rights. Here are some of the things that can affect the value:
Leasing Activity: As crude oil prices head lower, so does mineral leasing activity. The reason is that operators are forced to evaluate all of their acreage positions and select only those positions which they expect to bring them the highest return. How does this impact you? If your acreage is in a location that’s no longer attractive, you could see leasing activity completely stop.
Lease Bonus Amounts: In addition to decreased activity, the amount operators are willing to pay for a lease also goes down. You would think they would have more money to spend if they are leasing less areas, but that’s not the case. The reason is that operators can only drill those wells that are the most profitable, and leasing up expensive acreage is not something they wish to do. In some areas you will see lease bonus prices decrease substantially and in others operators simply won’t be willing to pay anything.
Selling Mineral Rights: If you wish to sell mineral rights, a reduced crude oil price will have a tangible impact on what you can sell mineral rights for. The reason is that when the buyer purchases your mineral rights, they are going to be affected by all of the same factors mentioned above. They will sell royalties produced from the property for a lower amount, it will be harder to lease the property, and they will receive less when they do. This doesn’t mean it’s impossible to sell mineral rights when crude oil prices decline, but it does make it more difficult and also reduces the amount you will receive.
What to do about reduced crude oil prices
Unfortunately many mineral owners don’t take action until it’s too late. You need to asses your situation and determine if riding out the wave in oil and gas prices is worth the risk, or if you want to guarantee how much money you can receive today. If you’re time frame for selling is in the next 5 years, selling before prices further deflate may be a smart decision. If you have a 10+ year time frame, holding onto your mineral rights might make the most sense. If you do wish to sell royalties or sell mineral rights, we recommend listing them with US Mineral Exchange. The reason is that you can quickly get your property in front of qualified buyers who are paying the highest market prices right now.