News Oil & Gas

Shale revolution opens opportunities to develop mineral and royalty market


As the shale revolution took hold, oil and gas operators flocked to the Permian Basin to acquire acreage with drilling locations, often for tens of thousands of dollars per acre.

Known as “Permania,” the land rush has cooled as operators focus more on returns to investors than growth in oil and gas production. But the same opportunity that drew operators to the region is giving rise to opportunities in another market: mineral rights and royalties.

Austin-based Brigham Minerals has just completed its $132.5 million acquisition of certain mineral and royalty interests from funds managed by Avant Natural Resources in Midland and Martin counties in the Midland Basin.

The acquisition includes 3,900 net royalty acres being developed by operators including Endeavor Energy Resources, Pioneer Natural Resources and ExxonMobil.

In this April 17, 2019, photo pumpjacks operate near a Diamondback oil and gas operation in Midland County.

James Durbin/Associated Press

“The growth in shale development, especially in the Permian Basin, coupled with the economics of mineral and royalty assets has driven much of the growth in the market,” Joseph DeWoody, chief executive officer of Valor Minerals Management, told the Reporter-Telegram by email.

He added, “the entrance of larger institutional and private buyers has brought a lot of capital to the space that has largely driven acquisitions and divestitures.”

DeWoody said buyers benefit by acquiring an asset that enjoys the benefits of oil and gas income without having to pay the expenses associated with drilling and operating the associated well. Those same acquisitions are also an effective alternative to investing in working interest and operations without having to bear the costs of drilling and operating the properties.

Sellers can benefit in many ways, he added, including using the large sum of cash paid to acquire the property to help with financial or estate planning needs.

Trey Scott, chief executive officer of Trinity Mineral Management, said recent high commodity prices – crude that had been excess of $100 a barrel and natural gas that had been approaching $10 per Mcf – had made mineral rights and royalty owners think it was good time to exit the market.

He told the Reporter-Telegram in a telephone interview that geopolitical concerns and concerns about the regulatory environment were also spurring sales.

A pumpjack rocks back and forth near a sign marking the Martin County line near Stanton, April 2, 2014.

A pumpjack rocks back and forth near a sign marking the Martin County line near Stanton, April 2, 2014.

JOHN DAVENPORT/SAN ANTONIO EXPRESS-NEWS

“Our clients have high net worth, and if they do sell a portion of their holdings, they’re divesting because the geopolitical environment is definitely a concern. The political environment being anti-fossil fuels is also a concern. With the stroke of a pen, the president could stop hydraulic fracturing and then they’d have an asset they can’t get out of the ground. This is not a friendly administration to oil and gas,” Scott said.

The market has exploded in the last few years, said Scott, and one of the things that has changed is how land and mineral owners look at maintaining their ownership. Besides concerns about the geopolitical and political environments, he sees divestiture driven by a desire to diversify a portfolio and concerns that capital gains taxes could go up under the current administration.

Selling mineral rights and royalties is a very personal decision for the seller, said Scott and depends on the seller’s state of life, needs in estate planning and the seller’s risk tolerance.

DeWoody sees a bright future for the mineral rights and royalty market.

“The United States is one of the only places that allows individuals to own the rights to the subsurface, and their ownership has created great wealth for many people,” he explained. “Looking forward, declining supply growth due to lower capital investment by operators and cost-free exposure to oil and gas production in an inflationary environment projects very well for a strong mineral rights and royalty market.

 

 



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