Just like all commodities, oil and gas has its shares of ups and downs, but this most recent descent was fast and hard. I thought an article giving some tips of how to hold on tight during tumultuous oil and gas markets might be timely.
Between the OPEC war with Saudi Arabia and Russia and the negative financial impacts of the Coronavirus on world economies, your oil and gas royalty checks have taken a big hit lately. That monthly royalty check has likely been slashed in half or even worse stopped coming all together. Many oil companies are curtailing production on their wells because pumping out oil at $24 per barrel is just bad business. So, what is a royalty owner to do during these lean times? Well, I’ve been working in this industry for almost 20 years now, and we’ve seen the highest highs, some pretty low lows. I can guarantee you, the clients that have come out the other side most successful are the ones that kept cool heads and planned.
Lesson One:
Look ahead. It’s easy to get caught up in the moment, when oil and gas is trucking along at $65 plus a barrel. It’s prudent to always assume that those prices could go away tomorrow as they did with this downturn. Overnight we fell from $58.00 per barrel to $21.00 per barrel. At a bare minimum, make sure you are setting aside enough money to cover your income taxes. I can’t tell you how many clients take future revenue to pay current taxes. In an up economy, that works fine. However, when that revenue stream gets cut in half, you don’t want to be left scrambling to pay the government when oil prices are falling. That’s just bare minimum. Furthermore, saving some of your oil and gas revenue for the proverbial rainy day can make all the difference.
Lesson Two:
Hold on tight!
In times like this, there may be an inclination to divest of your mineral, oil and gas assets. If at all possible, resist that urge. Don’t sell your miner rights when the market is at its lowest. You’ll be selling at pennies on the dollar. Mineral buying companies are actively on the hunt right now, looking for people who get desperate in their efforts to make ends meet. If your finances will allow, hold on to your mineral rights through these downturns.
You’ll be leaving so much on the table if you let go of your mineral rights and sell at moments like this, thousands of dollars most likely. If you find yourself in a situation where you have to sell out of necessity do two things.
- Contact someone that can broker your minerals and walk you through the process. A good mineral broker should pay for themselves by the increased value they get for you. They will expose you to markets and buyers that would be almost impossible to gain access to on your own. The buyers they bring you will be vetted, reputable buyers. You’d be surprised about how unscrupulous some mineral buyers can get, looking to get at your mineral rights for bottom barrel prices. Your mineral broker will help protect you from those kinds of pitfalls.
- If your finances will allow it (they should if the mineral broker can bring you increased value) don’t sell 100% of your mineral rights. The increase you get form working with a broker can hopefully allow you to keep a portion of your mineral rights to enjoy during more prosperous times. Even if you want to divest of all your minerals, sell only what’s necessary during the lean times and save the rest to sell when prices rebound.
If you find yourself facing a difficult decision like this right now, or at any time, please reach out to me. We can look at your portfolio and strategize. We can create a plan that is custom to your situation. You don’t have to navigate these difficult times alone; I am here to be your advocate.