Wednesday, May 20, 2015

Oil Price Risk To Mineral Rights Owners

Many mineral owners take the position that they will hold onto their mineral rights instead of selling them (or part of them) and gamble that they will earn more by holding. And whether they like to admit it or not, it is a gamble. The oil business is fraught with risk and price risk is a huge factor.

In oil and gas producing regions, I have observed an interesting thing about people and that is that they, invariably, will say "Oh, it'll be back," implying that oil prices will recover sooner than later. Oh, really? What about the collapse of 1986? By my account, it was about 17 years until the oil biz health improved dramatically. And 17 years is a very long time! Many a geologist, many an engineer, many a landman changed careers during that crash!

Oil fell a whopping 60% during the crash of 2014. What a disaster! Will it come back soon? Or do you find yourself asking "Should I sell mineral rights" now? I don't know! But take a look at this chart below.

The dark line is crude oil price, the blue line is an INVERSE U.S. Dollar. So, if the dollar strengthen, the line goes down. Notice the amazing correlation (inverse relationship) between crude oil and the dollar. Now, what is the dollar going to do over the next several years. At some point, many people will say that it will crash, that its value is not "real." I know one thing... it's almost impossible to predict! Some are saying that the rally during the spring of 2015 is over, that the dollar will now rise and oil will fall. Your guess is as good as mine regarding what crude oil prices will do long-term. And the relationship to the dollar is just one piece of the huge puzzle that is energy prices!

What does this inability to predict future prices mean to mineral owners? I get tons of inquiries about whether a mineral owner should sell mineral rights or not. Considering that often-asked question about selling mineral rights or not... it can be a very tough decision, with no easy answer, because we can't predict the future. But one thing is for sure -- cash money TODAY versus what might happen in the future can be a great move. If one needs or wants cash for whatever reason, and selling mineral rights can provide that cash, it can be a simple solution. I've sold before and I'm glad I did. I also have held mineral rights long-term. But, I might sell again. I am no spring chicken and cash money is tremendously appealing. We can't take it with us!

If you do have any interest in selling mineral rights or selling royalties, contact me. I have helped a LOT of people do that very thing, from small interests that sell for a few thousand dollars to large deals selling for over a million bucks. Good luck!