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What Low Oil Prices Mean for Mineral Owners

Oil, being a commodity, is subject to price swings. And sometimes those price swings are wild. Mineral owners are paid well head pricing, or the prevailing market price, unless your lease stipulates a different payment metric. In the news and within investor reports, you will hear the term hedge when referring to oil prices. Operators and large mineral owners can buy hedges to guarantee a bottom or ceiling on prices. These hedges allow operators to continue to drill and produce wells at a specific dollar value, even if market prices are depressed. In 2020, this is the case. Oil swung under $30/bbl, but many operators had hedges to ensure they were able to sell at $50/bbl. For a mineral owner, you do not benefit from these hedges, other than the well you have interest in not being shut in. Your checks will smaller and you will notice the price of oil & gas will be the market rate. This is one of the risks of being a mineral owner—when times are good, your checks are large; but when they are bad, your checks are small. Like all commodities, oil will stabilize and so will your checks. If you have a mineral portfolio of scale, hedges might make sense to de-risk your downside, but they come at a financial cost. Realize that mineral buyers are using this time of depressed prices to lower valuations on the offers they send to sellers. Do not be fooled, your assets are worth more than the prevailing market pricing. MineralIQ’s valuation tool will show the changes in your portfolio’s value for producing assets so that you can better understand what you should be offered. Oil price swings can last months to years; do not fret when your checks get smaller. Take the time to learn more about your assets and determine if you want to hold them in a diversified estate.

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