The Decline of Oil Prices
Updated: Mar 1, 2019
The historic collapse of the oil and gas market that the U.S. has witnessed over the last year has brought out varying expert’s opinions on the future of the market in the years to come. While consumers are rejoicing over lower prices at the pump, many mineral rights owners are left with the question -
how will this affect the value of my minerals and the accompanying royalty checks?
What Led to this Decline?
At the beginning of 2014, the U.S. reached an all-time high for domestic oil production, including liquids separated from natural gas, with daily output exceeding 11 million barrels per day. This increased supply led to greater competition between distributors, causing a drop in oil and gas prices.
Amidst these events, the Middle East, which houses some of the largest oil-producing countries in the world, could have chosen to slow production and help stabilize the over-saturated market. Instead, Saudi Arabia and other OPEC countries have continued producing at their normal rates, further increasing supply, and in turn speeding up the decline of prices.
Because of this supply surplus, oil and gas drillers and investors have seen their commodity prices drastically fall, resulting in lower revenue and faltering capital investments. Many oil companies are finding themselves in over their heads and have been forced to put drilling on hold.
What Can Mineral Owners Do?
Mineral owners are watching their royalty checks shrink in front of their eyes with each passing month, and many are bound to feel the pinch from that loss of income. To help mitigate these tough times, one option is to sell some or part of their mineral or royalty interests. This offers a lump sum of money and therefore takes the majority of the risk out of the equation. Whereas corporate mineral buyers have the capability and capital to take on the risk that comes with the ups and downs of the market, this same risk can be devastating to individual mineral owners. For a more in depth look at what you can do, check out this post on low oil prices and how they effect the value of your mineral rights.