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!

I Won't Sell, I Will Just Keep Leasing It

I just got a phone call from a man who is in need of raising significant money quickly and wanted to know "Who buys mineral rights?" It was in a shale play. And I said I'd buy them. At the right price. After a lengthy discussion, I found out his mineral rights are mortgaged (along with his land). I asked him how much the balance is. He told me and said "And that's why I want to sell my mineral rights, pay off the loan and use the rest to do some other things."

Based on his balance owed, how many acres he had, the location within the shale play, the royalty percentage in the oil & gas lease and some other factors, I was immediately taken aback. After having spent considerable time with him during the "interview," I was aghast that he thought his mineral rights would bring that much money. I knew they wouldn't. Not even close! So, I clarified that he was, indeed, hoping to get that much money, and then said "I sure wish I could help you out here but we're going to be much too far apart. They are not worth near that amount of money. The market won't pay near that much." And then I explained that the market is the barometer. Minerals are worth what the market says they are worth, in general. Sometimes, you can't even find a buyer, but when you can, a sale will never be for several times what the market is for like minerals. Unless the buyer is a buffoon!

The man agreed with all of that and I could tell he was disappointed. But, that was pretty much the end of it, I couldn't help him.

He then said that he'd just keep signing an oil & gas lease on them every five years and enjoy the lease bonus. I knew that he had suffered medical problems and needed money, so, I politely told him not to count on more lease bonus money, it might not come around again. I told him he could just sit and hope that the current Lessee drills and hits. But to realize that there is risk. I then pointed him to this site -- http://www.whysellmineralrights.com -- it has a pretty comprehensive discussion of the risks involved and factors to consider, whether to sell mineral rights or not. We then ended the conversation amicably and I wished him well.

I suppose the moral of this story is that those thinking of selling mineral rights need to understand market value, and to never count on lease bonus money coming around on a regular basis. Because more than likely, it won't. Good luck, mineral owners!