Economic anxieties have rekindled in North Dakota as wildly fluctuating oil prices, production drops and the ongoing coronavirus situation threatens to leave the state’s mineral rights owners in disarray.
Mineral rights—the right to extract and profit from commodities under the surface of a property—are among the most lucrative royalties driven revenue and pay out more than $20 billion nationally each year.
Six months removed from the state's first confirmed infection of Coronavirus, nearly 80 percent of North Dakota’s oil platforms remain offline as thousands of local workers go unemployed. The results are falling prices for both commodities and mineral rights.
Alex Branda and Tom Butler, of Petroleum Evaluations Group, addressed how falling oil prices affect mineral rights owners that may have planned on selling.
The company provides technical, fair market valuations of oil and gas properties and assist mineral owners with the knowledge they need to make their own informed decisions.
According to Butler and Branda, the value of a mineral rights depends on a certain minimum price of oil and gas to sustain drilling activity in an area — often called the "break-even" price.
“Expectations of oil prices rising above the break-even price of $45/BBL is relatively low at the moment. As such, the offers many mineral owners in North Dakota are receiving to sell their mineral rights is much lower than in the past,” Branda said. “This is especially true for properties whose value was mostly based on the expectation of future drilling, rather than ongoing oil and gas production. But, if prices can be sustained above the $45/BBL break-even, then what will matter the most is how active energy companies become in drilling new wells in the near future.”
North Dakota usually produces 1.5 million barrels of oil a day in the Bakken, but in order to sustain such a large production vast industry of laborers are needed to continue operating and servicing existing wells while simultaneously finding, drilling and maintaining new ones — a level of economic activity that Branda said is most easily sustainable when the price of oil is closer to $45 per barrel.
Throughout the summer, mineral acquisition companies opted to stop sending offer letters because of the uncertainties in the market in estimating actual values. Recently, the letters have once again started making their way to homes across the rich rock formation that extends through the western part of the state. However, according to Branda and Butler, they are lower than what they have been in recent memory.
Mineral owners have had increased difficulties this year, specifically those wanting to sell their mineral rights as opposed to leasing them, as financially viable offers dwindle.
“Commodity prices, production and investment risk, all play a role," Butler said. "If a property already has many wells producing, it is much less susceptible to seeing a decrease in its value when oil prices drop. If a property is depending on future drilling for its value, then a drop below the breakeven price can completely eliminate its value. When a mineral owner is considering selling their mineral rights, it can help that they get the opinion of an expert. An expert can also help them establish the value of their long-term capital gains tax if they already sold their mineral rights.”
Over the century and a half that oil companies have been putting together deals to find and successfully draw out oil on private lands, the complexity of said deals have become layered and full of technical and legal phraseology.
Butler added, “We’re out there to help people and make sure they don’t get ripped off.”
For more information visit, Petroleum Evaluations Group