Summer 2020 Update
Minerals – Summer 2020 Update
Summer of 2020 has been a rough one—COVID-19, civil unrest, and an energy market in free fall. Not all is lost; with the rebound of travel and activity, we have seen oil prices rise back to ~$40 per barrel. Minerals are the one area of the oil & gas sector experiencing an increase in activity. Since minerals have no cost to own, they are seen as a better investment than a physical asset given the large costs of drilling and completing a well. Mineral prices have maintained high valuations—even as oil prices have cratered—due to the long-term view of buyers. However, many owners have seen their checks reduced significantly or even stop completely. This is due to operators shutting in wells or curtailing production. Many mineral owners do have provisions that protect them, known as shut-in clauses, but they pay very little compared to their revenue check. Some owners have threatened lawsuits, which tend to be expensive and do not yield significant results. The reality we all are faced with is needing to have better, open communication with operators.
Mineral owners should know their rights and exercise them as needed. When checks are reduced to nothing, owners should take a calm approach and evaluate the situation from every angle so they can avoid an emotional response. Operators are not shutting in production because they want to, they are doing it because they must. Many are trying to protect the returns of the asset for themselves and, therefore, its mineral owners. If an operator shuts in a well for three months and oil prices increase by $10/bbl, they have acted in good faith and did not produce oil that would have been sold for less today. It can be difficult for many owners who rely on this money for their livelihood or for supplemental income, but rarely does an operator shut in a well for anything but extreme reasons. If you have not received any information from your operators and your payments have either been reduced or stopped, we recommend reaching out and asking for clarity. MineralIQ provides contact information for more than 100 payors. Communication from an operator should always be clear and concise and there is nothing wrong in asking for additional information in light of today’s environment.
In times of reduced oil & gas prices, offer letters from buyers tend to increase. That is because buyers are trying to find owners who need to sell due to economic reasons, allowing them to acquire assets at a discount. But, recall that—much like the stock market—what goes down, comes back up. Do not sell in a panic when market fluctuations happen; keep a level head and negotiate with the long term in mind. Unlike selling a stock, when you sell your minerals, it is rare that can you ever buy them back. Realize that buyers must make money, so they are going to offer you less than its worth in the long run. Now, this is not to say you should never sell, but be aware that just because your checks have reduced 90% does not mean that your asset is worth 90% less. Prices of minerals do not correlate evenly to asset pricing. MineralIQ’s valuation tool will help you understand the minimum of what assets trade for, though most owners are paid multiples of the values we show. If you need to sell your minerals and are receiving offers that don’t make sense, reach out to MineralIQ for personal help. We have connections with thousands of mineral buyers that can provide alternate bids to help you better understand the true value of what you own.
Most owners’ questions are focused on where the market is going in 2020. Oil & gas prices should stabilize as things get back to normal. As prices increase into the $40-50 range, more wells will come back online and your checks will increase in size. Most owners will not see a significant increase in check revenue until drilling and completions resume. There is no telling how long that can take. But with MineralIQ, owners can receive updates when a rig shows up near their properties, a new permit is filed, or a new well is brought online. Realize that no other platform can provide all this activity; MineralIQ uses GPS units attached to rigs to give you their exact location. The best another website can do is provide you regulatory data that is between three and six months old. So as activity picks back up and your checks increase in revenue, ensure you are checking MineralIQ for the latest on your portfolio!