Factors Affecting Oil Prices
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 in which the price of oil affects, or doesn’t affect, mineral rights and royalty owners.
The Price of Oil’s Impact on Active Mineral Royalties
If you are currently receiving mineral rights royalties from an active operation in which you own some of the mineral rights of oil production, 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, of which you receive 1% of net profits. If the price per barrel is $75, each month’s revenue would be $15,000 (200 x $75), of which 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 amount 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.