How to Weather an Oil & Gas Industry Bust

  • June 29, 2020

3 Tips for Managing Mineral Rights During Volatile Times

BY:  DAVID LUKE  |  President, Argent Mineral Management

Photo of Dave Luke

David Luke

This spring, mineral rights owners experienced one of the most severe declines in oil prices in the history of our country. Global oil prices were already weak, and then the situation worsened in early March when Russia and Saudi Arabia disagreed and battled over how to stabilize the market, with Saudi Arabia eventually deciding to reverse course and flood the market with product, drastically lowering crude prices.

With incredibly poor timing, the industry problems that came from the market saturation by Saudi Arabia were compounded by the emergence and spread of the COVID-19 pandemic, destroying global demand. This double whammy resulted in a massive amount of available product, with nobody needing it…and quickly, crude oil became literally worthless for a time.

The good news, as of this writing, is that global oil leaders and government regulatory bodies are investigating possible production cuts to stabilize the market. The federal government’s purchasing of U.S. oil to place in the Strategic Petroleum Reserve, as well as possible temporary government financing and assistance programs, may aid the nation’s producers.

While regulatory certainty and market stability are important, mineral rights owners must also develop the right strategy to make it through this difficult time. Here are three tips to help stay the course:

1. Be Disciplined and Diligent

Don’t panic. Trust that the economy and demand for commodities will rebound. They always have. As an example, the transportation industry is one of the largest consumers of oil and gas.  The various businesses associated with this industry have been decimated by “stay-at-home” orders, resulting in a dramatic decrease in everything from personal car usage (gasoline) to air travel (jet fuel) to trucking deliveries (diesel) to ocean shipping (heavy/low fuel oil & diesel). When the economy rebounds, businesses and consumers will quickly increase the use of “planes, trains and automobiles.”

2. Be Wary of Poachers

A wide range of buyers – from private equity firms to billionaires flush with cash to small land brokerages – are ready to buy proven oil and gas assets for pennies on the dollar. When an owner’s monthly $500 royalty check is reduced to $100 or less, it can seem like it’s more of a hassle to deal with the paperwork than to continue owning the asset. Low ball offers for mineral rights might start to look attractive and be tempting, especially when ownership has become more fractionalized in families due to inheritance over generations. Listen to trusted mineral management advisors with extensive, hands-on experience in the oil and gas industry.

3. Trust Your Mineral Manager

The U.S. is one of a few countries that allows private individuals to own the minerals under their land. Business relationships between mineral management firms and oil and gas operators can dramatically help with the challenges that land and mineral owners face. Quality relationships and proper management help result in timely opportunities for the development of mineral assets and can avoid poor decisions that could impact generations of family members. Mineral management has never been for the faint of heart. The history of the oil and gas industry is marked by boom and bust cycles. The key is being able to make the right decisions, and know the right people, to mitigate the damage and stay the course as demand bounces back.

Before the pandemic and surplus, our staff was kept on its toes with complex mineral contract negotiation, extensive and detailed oil and gas accounting and auditing past payments by operators. During and after these rough times these duties remain the same. However, expert experience, quality decision-making and industry connections become more important than ever.

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