Royalties -- July 17, 2017

A few days ago a reader sent me a story regarding his family's mineral rights. Despite owning very few acres and a net ownership rate of 0.6%, his family has earned in excess of $2.4 million since the Bakken boom. It was quite a story. The reader sent it in to me in response to an earlier post on royalties in unconventional shale.

Today, of all things, Bloomberg via Rigzone has a feature story on the same subject. The article begins:

Bob Ravnaas raised a paddle in a Houston auction house to secure his first block of mineral rights 19 years ago, when oil prices were swooning below $20 a barrel.

A generation later, that same West Texas oilfield is still spinning off royalties, part of a mineral-rights empire amassed by Ravnaas that stretches across 20 states and delivers millions of dollars in cash payments. Kimbell Royalty Partners LP, where the former petroleum engineer is now chief executive officer, has stakes in 48,000 oil and natural-gas wells in some of the hottest U.S. shale patches. These days, it’s not alone.

America’s drilling boom is making a hot commodity out of one of the stodgiest of oilfield assets, the monthly royalty check. Lured by the promise of steady returns without the cost of actually operating wells, companies like Kimbell are racing to acquire rights around the U.S. Private-equity giants including EnCap Investments LP and Blackstone Group LP are getting into the game as well, pouring billions into the market.

“It’s become a very attractive investment," said Ravnaas, whose Fort Worth, Texas, company went public in February with a $90 million offering. “Oil and gas production has increased dramatically in the last ten years, and the size of the royalty market is increasing exponentially along with it."

Drillers have negotiated with landowners for decades to tap the reserves below their acreage. But mineral rights have taken on new value as advanced drilling techniques sparked a renaissance in oilfields across the U.S. The rights guarantee holders an upfront bonus when an operator decides to drill and a cut of revenues for each barrel sold thereafter.

So much more at the link.