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Factors affecting oil prices are widely fluctuating which makes it tough to speculate what the price per barrel will be year over year.  Aside from simple supply and demand, oil prices are affected by trends in geopolitics, weather, and technology.  So how does the day-to-day price of oil affect mineral rights and royalty owners?  In this article, we will explain the different scenarios. Learn how the price of oil affects mineral rights and royalty owners.

The Price of Oil’s Impact on Active Mineral Royalties

Are you currently receiving mineral rights royalties from an active operation? Do you own some of the mineral rights of oil production? Now, you will see the direct impact of the price of oil on each one of your royalty payments.

Let’s say you own mineral rights that produce roughly 200 barrels of oil each month. Moreover, let’s say you receive 1% of net profits.   If the price per barrel is $75, each month’s revenue would be $15,000 (200 x $75). With that, you would receive $150.  If the price per barrel drops to $60, each month’s revenue would equal $12,000, of which you would receive $120.  In this instance, your royalty payment is directly related to the rise and fall of the price of oil.

The Price of Oil’s Impact on Non-Active Mineral Rights Owners

If you own the mineral rights to land that is not currently being drilled, the daily price of oil will not directly affect your income but will play a factor in determining the value of your mineral rights.  If you are looking to sell your mineral rights, incoming offers will likely be based on the current and predicted future price of oil and may be lower than usual during periods in which the price of oil is also low.  Obviously, the value of your mineral rights is composed of many different factors, with the price of oil playing a small part in the overall valuation.

The Price of Oil’s Impact on Non-Oil Mineral Rights and Royalties

If you own mineral rights or royalties that are not pertaining to oil, such as natural gas, coal, or uranium rights, the price of oil is unlikely to directly impact the value of your rights or the number of your royalties.  Although some studies have shown that an increased price of oil will lead to an increased demand for natural gas, and therefore more natural gas production, the correlation between the price of oil and non-oil mineral rights and royalties is not strong enough to reach any sound conclusions.

Mineral rights are defined as the property rights to exploit an area of land for the minerals that it harbors.  Buying mineral rights or royalties is a highly profitable investment if done correctly. We’ve created this quick guide to help you understand the purchasing process, however, the best way to learn about how to buy mineral rights or royalties in the United States would be to talk to an expert at Ranger Minerals.

Find Potential Mineral Rights Sellers

Finding the right seller for mineral rights or oil and gas royalties is often the hardest part of the process.  There are few resources, such as Mineral Owners, specifically for Texas that breakdown land by county available for oil and gas investment.  At Ranger Minerals, we have a strong portfolio of cash flow properties,

Make Offers

Once you have calculated the percentage of the royalty you would like to own, you can begin to contact the mineral rights owner with offers to purchase.  Due to the highly profitable nature of oil and gas royalties, buying mineral rights can require a Marlon Brando-like proposition of an offer that cannot be refused.  If the acquisition is particularly high, the purchasing process may start with a declaration of interest, rather than a valued offer.  You can skip the hassle of finding and bargaining with mineral rights owners by working directly with Ranger Minerals.

Verify and Strike a Deal

The response rate for mineral rights and royalty offers is very low.  However, once you begin speaking with an owner, it is best practice to verify the revenue stream by asking for the past few months of royalty stubs.  Of course, if you are working with Ranger Minerals, you will not have to worry about low response rate or verification, as each property is pre-vetted and our process is fully streamlined. If all looks well and good, draw up the contract and sign the agreement.

File the Paperwork

Once the deed is signed, the paperwork must be filed both with the local courthouse and the existing oil company.  If you are buying mineral rights independently, it is crucial to have the appropriate legal council to approve and verify the legitimacy of all of the paperwork.  Once everything is official, you should begin receiving royalty payments in as little as three months.