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- Hedging Inflation with Minerals and Royalties (Updated 2022)
Are mineral rights a good investment? If you're looking for reasons to invest in oil and gas, the best way to be sure about your decision is to unlearn what you think you know and re-learn what's new and changed in the industry. 2022 Update This article has been updated to reflect the economical changes not only in the US but also around the globe. As we rise out of the ashes of Covid, the rate of inflation is at a 40-year high, having risen at its fastest pace since 1982. Russia has invaded Ukraine, which is likely to push food and commodity prices up higher. Wages have increased dramatically as one can tell when driving by a fast food restaurant advertising hourly rates starting at $15 per hour with these rising labor wages are to be passed onto their customers. It's been a wild ride and it doesn't look poised to end anytime soon. So how does owning minerals and royalties affect the owner during a hyper inflationary period? Buying Mineral and Royalty Interests as a Hedge Against Inflation Many investors have started to think seriously about gobbling up any investment that could act as a hedge against inflation. It is a topic that should be on most minds, investor or not, at this juncture in time because we will likely be dealing with a very extreme bout of inflation over the next 10-20 years. However, there are a few investments that can be used as a hedge against inflation where their value stays equal or increases faster than the rate of inflation (or the decline of the dollar). and they are: · Gold and silver (physical, futures, and stock in gold companies) · Fine art · Vintage cars · Real estate · Oil and natural gas commodities Of course, there are probably several other good strategies, however we will only focus on the oil and gas industry. Disclaimer: This is not financial advice, but the investment strategy I’m about to mention is sound and proven; you get to ride the wave of an asset class not known to many investors - buying mineral and royalty interests. It checks several boxes that make for a great investment to hedge against inflation. How the Price of Oil and Gas Affects Mineral and Royalty Owners During the time in which an oil and gas Operator is drilling and producing, they are selling that oil at certain price per barrel (bbl) and the gas at a certain price per million cubic feet (mcf). When the price of oil and gas are on the decline, Operators hedge their production by locking in a price to sell it. Conversely, in times when the price of oil and natural gas are on the way up, Operators don’t typically lock in the price to sell their production because they want to sell it at the present higher market rate. If the price is steadily increasing and there is fear of a price crash, they may lock in a price at that point and see what happens. However, when oil and natural gas prices are just starting their run up, Operators will ride the wave, typically increase production, and start producing as many wells as possible hoping to cash in on the higher oil and natural gas prices. During this time when Operators are selling production at higher rates, the owners of mineral and royalty interests under lands the Operators are producing from will also benefit by seeing higher and higher monthly royalty checks. (This is another reason why it’s good to have a diversified mineral and royalty interest portfolio under good Operators and it’s also important to understand the stages of production.) "High oil and gas prices = High royalty checks for mineral & royalty owners." Thinking of investing in minerals and royalties? You must first understand three important things. Oil and gas is here to stay for the next 10-15-20 years. There's just a few more good friends alongside them (hint if you've been living under a rock it's renewables) Make sure you understand the risks and rewards of Investing 101. If you don't, you will have unrealistic expectations and low chances of success. Ensure you have a reputable industry expert with a solid network so you can reach the real and serious players in the industry. Like most commodities, oil and gas is heavily tied to supply and demand. We've seen the price per barrel of oil start to steadily climb so long as the major global producers keep their production in check and don’t flood the crude oil gates. Hedge and mutual funds in the energy sector have investments in this asset class and have been reaping the benefits for decades. They have had within their baskets a vast amount of oil and natural gas operating companies listed on the S&P 500 and New York Stock Exchange. This asset class is still growing and the intricacies of investing in this specialized area of oil and gas is largely unbeknownst to the common investor. Truth is, anyone can invest with almost no minimum investment requirements. Here are the 10 great reasons you should consider when investing in oil and gas minerals and royalties and how to get started: Reason #1: There are billions of acres available for anyone to invest in. The US is unique in that it has billions of acres where anyone, individuals, companies, etc. can own minerals and royalties, whereas in other countries the government owns the minerals and individuals are only allowed to purchase the surface rights. Reason #2: You (and your family) own minerals and royalties forever. With the exception of overriding royalties (however, these are still a good investment if bought with the right criteria and at a reasonable price), once you own minerals and royalties, they are yours forever until you decide to sell them. This means your heirs can also inherit them should you decide to pass them down. Reason #3: They are a source of passive income. Anyone like mailbox money? Minerals and royalties can create passive income for 30-40 years and maybe even for a lifetime. Once you own minerals and royalties and they start producing, you can just sit back and collect and even earn money while you sleep. If they’re eventually going to be passed down to your heirs, they will receive the royalties too. Reason #4: Low-cost maintenance compared to other investments. Unlike other investments in oil and gas, once the purchase of minerals and royalties is complete there are no monthly expenditures required and no further deployment of capital. Once your minerals and royalties become producing, you’ll have to keep up with lease maintenance, if applicable to you, and make sure you are being paid correctly (that’s what Mineral Managers are for). Once owned, unlike other investments in real estate (which is exactly what minerals and royalties are), there are no annual taxes owed on minerals and royalties until they become producing. Reason #5: Low transactional regulations. The actual buying and selling of minerals and royalties is not heavily regulated like buying and selling other forms of real estate. Individual investors are not required to have a broker’s license or certifications to engage in the buying and selling of minerals and royalties (although I highly recommend hiring a professional to help). Reason #6: Diversify, diversify, diversify! A good diversification model is to own both oil and gas minerals and/or royalties in your portfolio across various areas of the United States. For example, when looking at opportunities to purchase minerals and royalties, I want to own oil producing minerals and royalties in the Eagle Ford shale, located in Southern Texas, and some natural gas producing minerals and royalties also within the Eagle Ford shale. Furthermore, I want to apply this same thought process when acquiring minerals and royalties in the Permian basin of west Texas and southeast New Mexico as well as the Haynesville shale in eastern Texas and western Louisiana, and any other producing area of the US. Reason for this is that the cost to produce and extract oil and gas is different in different areas. So, when the price of oil and/or gas rises and falls, the areas in which it costs more to produce and extract oil and gas will see less development and production therefore sidelining development in those areas. Reason #7: Invest in strong, prudent operators and companies. In addition to #7, owning diversified minerals and royalties under technical and prudent operating companies with strong balance sheets creates an even further diversified and stronger portfolio. The better the company and the better they are at operating your specific minerals, the more they will be worth. Reason #8: Short-term positive - recoup your investment early. In the short-term, investing in oil and gas minerals and royalties is a great investment if one can purchase the minerals and royalties right before new wells come online. This is when you can get most of your investment back as this is the point when production is at its greatest. Reason #9: Long-term positive - ride the gravy train. Once you have recouped your initial investment in the short-term, the extra mailbox money you’ll continue to receive is just like owning a ticket on the gravy train express for as long as the well(s) stay producing. Keep in mind that the well(s) will eventually stop producing but you have the potential to reap significant gains from your investment in the short and the long-term. Reason #10: 1031 tax deferred exchange. You can buy and sell minerals and royalties through the usage of a 1031 exchange which must be transacted through a qualified 1031 intermediary thereby creating the ability to defer your property sale tax to a later date. The only caveat is that the real estate (house, land, or other minerals and/or royalties) you buy must be of equal or greater value. So long as you follow this rule, you could do this over and over again for as many years as you’d like to defer your taxes until the final date in which you decide to sell your assets and not buy any others. One more tip: It always helps to look at the opposite side's perspective. Buyers need sellers so get educated on their point of view, find out what to look for when evaluating prospects, and you will be glad you took the time to understand their concerns when the opportunity to buy presents itself. There you have it! Investing in oil and natural gas minerals and royalties is not so scary. Minerals and royalties have long been considered a solid investment to help hedge against inflation and now is no different. Once you understand how the industry works and like all investments, are willing to accept the risks involved, then the process of investing in this enterprising venture can be exciting, rewarding, and something to offer your kids and grandkids for their futures. How to Buy Mineral Rights If you’re interested in taking the next steps to investing, here are two things you can do to get started: 1. Talk to a professional Landman or Mineral Manager about your plans. If you know the areas you want to invest in, find one who specializes in those areas of interest (AOI). Venergy specializes in the Eagle Ford shale and the Austin Chalk in southern Texas, the Permian basin of west Texas and southeast New Mexico as well as the Haynesville shale in eastern Texas and western Louisiana. 2. Read up and get educated on the oil and gas industry. Whether you are a beginner or a seasoned investor, information is always changing and it benefits you greatly to stay abreast of market changes. We have a number of helpful blogs and infographics to help you get going. If you would like to start really simple and just have a conversation, we invite you to schedule a time to set up a virtual meeting or fill out the form below and we will get in touch with you. Thanks for reading the VOG Blog!
- Dividing family mineral and royalty estate - what you should know
Dividing up family interests is a common practice for any number of reasons, and can be considered an advantage for all parties. Separation of family oil and gas assets can arise for any number of reasons: Family members pass on and their interests need to be divided among heirs Interests were held in a family business and for some reason it needs to be dissolved Certain family members want to sell and others do not Family members want their share of the interests to be held as separate property Family feuds Out of some other necessity (i.e. financial needs) How long does the process take? The amount of time and effort it can take to separate mineral and royalty assets depends on: How organized the family is in document retention and accessibility Communication efforts between family members and the professional helping them Operator timeliness in transferring ownership (Most importantly) If former patriarchs or matriarchs passed with (or without) a will and if the will(s) was probated Get a Will...have it Probated. Depending on which state/location your mineral and royalty interests are located, this can end up causing the most issues if the deceased did not have a will in place to describe the distribution of the mineral and royalty estate. The Intestacy Law in Texas asserts that when a patriarch or matriarch passes without a will and their spouse is still alive, 50% of the interest they owned at the time of their death passes to their spouse. The other 50% gets divided up evenly among their children. If their spouse is deceased, 100% of their interest passes to their children and divided evenly among them. So, in Texas dying without a will is not all bad, but can still cause issue amongst family members so it is best to have a will that states the division of estate. Whether or not a will is probated can also cause issues, which is why it is always best practice to have it probated, or pass it through the courts to "finalize" it and have it recorded in the county courthouse where the deceased passed and the state and county where the assets are located to put the public on notice. This process alone can take a long while so it should be handled immediately or at the earliest opportunity. (Note: Getting the will probated is a very necessary step if family members ever wish to sell some or all of the mineral or royalty estate as it will have to be done to clear title. Find out the best times to sell.) If these steps are taken, all that needs to be done is transfer the property to the heirs via an appropriate, properly drafted document clearly conveying either some or all of the property rights to the new owner(s). A professional Landman can do this for you. Predecessor died without a will, now what? If your predecessors passed without a will it's not the end of the world so don't worry. Assuming everything else is in order, family is on good speaking terms and they've kept good records, the paperwork will be the least difficult part of the process. Many folks think they need an attorney to do this, but a competent Landman can help finalize the transfer of oil and gas assets or property rights and save you money. Finalizing the transfer of property rights requires certain steps that need to be followed. Depending on your unique situation, the following could be required: A Title Review to determine the deeds necessary to transfer the property rights between family members (i.e. General Warranty Deed, Special Warranty Deed, Quitclaim Deed, Distribution of Property, etc.) Affidavits of Heirship to confirm family history (these could also be used to define how the estate is to be divided) "Having proper representation can go a long way." What if family members don't agree on how to divide up ownership? When it comes to dividing oil and gas assets among family, oftentimes the hardest part is getting them to agree on how to split up the assets. This can become an especially delicate situation if there is a considerable amount of property or the assets are producing a substantial amount of revenue. In either case, bringing in an intermediary can be the best way forward. Unfortunately, in my experience there is usually at least one member of the family that does everything in their power to keep the process from moving forward, or wants more than they deserve, which is why a good and PATIENT intermediary is needed. Sometimes time is the only answer for things to work themselves out; however, a patient and skilled go-between with experience in dealing with sticky family matters, emotions, and behaviors that can also listen to both sides without judgment or bias, is one that can be successful in getting all parties to the other side so they can put this behind them and move on. What happens if I want to separate my assets that are producing? Let's assume family members have their oil and gas assets distributed, their assets are producing, and they are receiving monthly royalties. Down the road, some of the family members may want to sell some of their assets and the other members may want to buy them. Assuming they agree on a fair price, they can sell the assets to each other without issue. To transfer the revenue's being received from the Operator to the purchaser, one needs to get in touch with the Operator's Division Order or Royalty Inquiry Division department and send them a copy of their recorded deed. The Operator should typically respond to a request of the change in ownership within 15-30 days, could take 45, with an updated division order to sign off on and the rest should take care of itself. One caveat is the division order the Operator sends back needs to be an approved division order similar to what the National Association of Division Order Analysts have created, which can be found in this PDF. You want to make this your responsibility to check your new division order complies with the NADOA approved form. If their division order does not comply, the best thing for you to do is to simply disregard, print and fill out the NODOA form, and send that back to them with a copy of the lease. If they don't like this, their intention could have been to alter what you as a royalty owner were due to receive. This is not always the case (and we'll attempt to give them the benefit of the doubt), but this is why we send them a better form with a copy of the lease to ensure accurate dispersement of royalties. If they balk at this, you may need to briefly hire an industry professional to send them a respectful letter (with a copy of the lease agreement) stating they are representing the you, the royalty owner, and your preference is to use the NODOA form and state why. This should resolve any issues the Operator may have with using their own division order form. Tips to help ease the separation process for families Get along with one another. If there is sour blood, put aside what brought family members to this position, the past can't be changed. Stay focused on why this is important for everyone to move on. Get any documents related to the property in order Get the owner's will recorded in the county courthouse Get the owner's will probated Family experience matters As a 14-year oil and gas professional, I've seen and dealt with a lot on the buy side and the sell side. I have a vast amount of experience dealing with families, those on good terms with each other and those on not so good terms. So far, I have a 100% success rate in getting families to work together and I will continue to do all I can to continue this record. I have worked for and with Operators of all sizes. I know and speak their language and have come to know some of the shenanigans some of them attempt to pull. Having proper representation can go a long way. A lot of the time, I know these Operators personally and can get someone on the phone fast thereby cutting down on wait and lag times if you were to do this by yourself. If I don't know someone at a particular company, I know how to go about locating the person necessary to get our needs accomplished. Since we've been offering this service we have had great success for our clients. We are happy to be there for those who don't know where to start, don't have enough money for attorney fees (or don't want to spend the money on attorney fees), or need a professional to be in the middle to help move family estate matters along. If you've inherited your mineral and royalty rights, check out our answers to common questions to help you know what to do next (scroll down to the section, How to Handle Inherited Minerals & Royalties). You can also schedule a time to speak us. We're here to help. Thanks for reading the VOG Blog!
- How much do mineral rights sell for in the Haynesville Shale?
There are a lot of factors that go into this answer, more so than any other area we focus on at Venergy. Minerals and royalties can be worth a lot more than you think or they can be a lot less depending on two major factors: The operator and their timeline for development The stage of development your minerals are in. (Find out your stage.) The gas marketing contracts operators must negotiate and abide by The Haynesville Shale is composed of mostly natural gas and since 2008 has been and continues to be a solid performer in the production of natural gas. Depending on the area of your interest(s), offers are still going strong because natural gas is a clean and in demand form of energy. There is a lot of activity going on here and the counties in Texas we are seeing growth include Harrison and Panola. The counties in Louisiana are: Caddo, DeSoto, Sabine, Bossier, and Red River. Remember, selling a portion of your interests could be a smart move if you need to respond for any life event. Venergy is here to answer your questions about the state of oil and gas in this prolific area. The History of the Haynesville Shale The Haynesville Shale gets its informal name from the town of Haynesville in Claiborne Parish, Louisiana. The total area of this great reservoir underlies large parts of southwestern Arkansas, northwest Louisiana, and east Texas. The core, or “sweet spot” is considered to be on the Louisiana side of the shale where the majority of horizontal drilling has taken place since the first well was drilled in 2008. Thanks to the late Aubrey McLendon and improved technological advancements in hydraulic fracturing, or “fracing”, operators were able to bust open this sleeping giant of a reservoir making it economic and cost-effective to extract this precious natural gas we rely on today. It was also wild man Aubrey McClendon who pushed lease bonuses to astronomical heights sometimes ranging in the $30,000+ range for the first time in history and not seen since. The Haynesville Shale is a behemoth formation that underlies an area of around 9000 square miles, averages roughly 200-300 feet thick and has a true vertical depth of 10,000-14,000 feet. When first discovered, it was thought to be the largest natural gas field in the contiguous 48 states but in 2009 the Marcellus Formation in the northeast U.S. took the title for largest gas formation. It continues to be a stellar area for producing vast quantities of recoverable natural gas and a top pick for mineral buyers and investors. "...the counties in Texas we are seeing growth include Harrison and Panola and in Louisiana: Caddo, DeSoto, Sabine, Bossier, and Red River. If you need further help or just want to have conversation about what's going on in the industry, schedule a time to talk with me or fill out the form below and I'll get in touch with you. Thanks for reading the VOG Blog!
- What is the Difference Between Mineral Rights and Royalty Rights? | Venergy Momentum Oil & Gas | TX
As a way of saying thank you for trusting Venergy to educate you on your oil and gas needs, please download your free copy to Understanding Mineral and Royalty Rights. We're here for you. Kyle D. Venema Founder, Venergy Momentum Oil & Gas
- Oil & Gas Minerals and Royalty | Venergy Momentum Oil & Gas | TX
Venergy Momentum Oil & Gas Acquisition and Divestiture Mineral and Royalty Management Consulting A private and progressive oil and gas consulting firm serving land, mineral, royalty and non-op working interest owners within the South Texas Eagle Ford Shale & Austin Chalk, Haynesville Shale, West Texas & New Mexico Permian Basin. Learn about our Specialty Services How much do mineral rights sell for? A lot of factors go into this answer. They can be worth a lot more than you think or they can be a lot less. Getting a professional mineral appraisal is the best way to find out. Without one, you could miss out on potential opportunities, make unnecessary mistakes when negotiating a lease or when selling some or all of your minerals and/or royalties. Request a Mineral Appraisal Selling your mineral rights Do you know what stage of production your interests are in? It matters. Find out. Read More Read More Recent News Mineral value Why is it so hard for buyers and sellers to agree on a price? Read more Read More Read More Inherited mineral rights Find out what you own and what you need to do next. Right here Read More Read More Results Are the Only Thing That Matter. We've been bravely producing results through the highs and lows of the industry for over the past decade and have been involved in over $250MM in oil and gas asset transactions. Venergy Momentum is dedicated to closing deals for landowners, mineral owners and brokers, that ultimately change their lives. We pride ourselves on knowing who to call, what to look for, and we have the tenacity and know-how to get results. 5.0 Star Google Reviews Kyle and Venergy are outstanding. Rare to see a combination of technical acumen, knowledge of the industry, and trustworthiness. You are in good hands with the Venergy team. -Daniel Anderson "Imagine my concern making "cold calls" to try to help find someone trustworthy to help me with inheritance issues. I discovered Kyle Venema and Venergy Momentum Oil & Gas. Kyle shared his first-rate professional expertise and deep knowledge base as he walked me through a process that led to the top selling-prices and closure. Not skipping a beat, Kyle's diligence leaves nothing to chance or undone. Every step of the way, I knew I could count on professional service, expertise, and integrity. Whatever your oil and gas concern is, reach out to Venergy Momentum Oil & Gas." -Soller Piano "Kyle Venema and his company, Venergy, are top notch. He is extremely professional, thorough and data-driven. I enjoy working with them and always know that no stone will be unturned." -Luke West "Kyle has been an absolute pleasure to work with over the years. He has an exceptional work ethic and deep knowledge of the industry. His kind, welcoming attitude has always set me at ease, which has also lead to a friendship outside of just business. A real class act!" -Paden Penny "We have worked with Kyle in a variety of settings over the years and he always displays professionalism as well as high ethical standards. He communicates extremely well and he looks at all sides of issues as he has experience working for oil and gas companies as well as landowners. We can always trust the quality and accuracy of his work and there is never a doubt of his ability to meet deadlines and accomplish his goals." -Jennifer Calloway "I have worked with Kyle for over 10 years in the Oil and Gas Industry. He works hard for his clients, and is always very responsive to calls and emails. He is the first person I call for advice on an acquisition or sale of a lease or minerals." -BM Comer "I have known Kyle on business and friendship level for over 20 yrs. Not only do I consider him a trustworthy, honest person, he does also have the right instinct/nose for great deals. I consider him an expert in his field and have reached our to him many times over the years for business advice." -Piran Ghods "Venergy Momentum Oil & Gas has been a wonderful partner to work with in the area of helping us to identify and claim our oil & gas assets. Kyle Venema is a knowledgeable, professional resource in the oil & gas field who has provided us with thoughtful, courteous assistance in navigating the legal process of dissolving a partnership and transferring our assets. Kyle provided honest, straight forward advice and assistance in dealing with a variety of participants in the oil & gas industry, such as counties, taxing authorities and producers. If you are in need of advice and/or assistance regarding issues in the oil & gas industry, I highly recommend contacting Kyle Venema at Venergy Momentum Oil & Gas LLC. -Mike Goodwin "We found Kyle Venema on our Next Door App feed. He is just what we needed to help create legal documents that we filed in many counties. Kyle has been so helpful. To speak more to this, here are more characteristics that he possess: Knowledgeable with oil and gas legalities and can easily put in layman’s terms. Helped us avoid large attorneys fees. His fees are very reasonable. Listens to clients to understand their needs. He is professional and helped us in a timely manner. He is a great researcher and communicator. He is much more than a land man." -Margaret Goodwin "WE have happily worked with Kyle on a couple of projects since 2021. His prompt advice on the land and the titles served a critical part of the due diligence study in the oil and gas asset acquisition. Most important of all, he always put client's interest in the first place. Highly recommended!" -WE Resources Read our Testimonials
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