How will the oil and gas industry’s changes in Texas, Oklahoma, New Mexico, Louisiana and on the global scale impact owners’ 2020 mineral owner strategy?
Regardless of the location of your mineral assets, you can probably expect a few bumps in your future as an owner.
Previously, we shared our take on what the 2019 International Energy Outlook means for mineral owners—especially those with crude oil and natural gas resources. The predicted 20% spike in demand by 2050 is created primarily by nations’ industrialization development.
We’re seeing the US’s investment in pipelines, shale-oil production and liquified natural gas (LNG) strengthen our position on the international stage.
“U.S. shale-oil production will reshape global energy markets in the years to come, bolstering the country’s influence over OPEC nations.” -IEA
HERE’S WHAT TO WATCH IN 2020:
Offshore’s Tech is Revolutionizing Conventional Play Exploration
AVO analysis is typically used during offshore exploration, but thanks to Samson Energy’s 3-D seismic study near Beaumont, Texas, owners and operators are applying innovative techniques to finding hydrocarbons. The next evolution of exploration blurs the onshore/offshore distinction, slices risk into a third and delivers big for the Barrow Ranch owners.
New Texas Pipeline Connects the Permian Basin to Eagle Ford
While the pipeline won’t be operational until Spring 2021, the infrastructure advancement’s impact is expected to be significant. The new pipeline is expected to create a capacity increase of 450,000 barrels per day. To put that number in context, the 2019 International Energy Outlook reported Texas petroleum and crude oil production to be approximately 40% of the nation’s aggregate—and this new pipeline will be able to carry approximately 10% of the entire state’s daily production.
It also comes at a fortuitous time for operators on the Barrow Ranch who will have easy access to the pipeline as they extract the estimated 10M barrels of oil.
Louisiana in Limbo While Parishes’ Sue the Industry
Louisiana is a state known for hospitable residents, but this year, the relationship with oil operators near the coast has turned towards hostile. Forty-two Louisiana parishes have filed suit against oil and gas companies for damage to the state’s coastal wetlands. As the suits bounce between jurisdictions and battle for equitable resolution, the Louisiana oil industry (including owners) are left in limbo. The ongoing legal disputes are expected to stall or deter industry investment—which could have significant ramifications on the coastal parishes’ economies. It’s a good time for mineral owners to review their shut-in royalty clauses, even if they’re not located in a coastal parish.
Do you know what your rights and options are if an operator pulls out of the state? Releases leases? Ceases production?
While we can’t foretell the future, we can certainly review leases clauses and help owners understand their potential scenarios.
Oklahoma’s Oil Production Primed—But Paused
Operators in Oklahoma have been waiting for the right time to start production and are hopeful the new year will reward their patience. In 2018, Oklahoma produced approximately 5% of the nation’s crude oil and petroleum—and with rich resources in the Anadarko Basin, they hope to gain additional market share. It’s estimated that 10% of the nation’s 7,642 paused wells that are fully drilled but not operational are located in the Anadarko Basin—waiting for a profitable production period. That holding pattern is partially due to continued low prices and uncertainty around OPEC’s actions—which still carry significant pricing influence on the global stage. On December 6, OPEC and Russia signed an agreement to further cut their oil production for the first quarter of 2020; however, a long-term solution or decision has yet to be reached.
Oklahoma’s oil and petroleum producers are waiting for prices to rise, which can be a frustrating wait to many owners who have non-producing wells.
New Mexico’s New Legislation That’s Both Eco- and Profit- Friendly
New Mexico has had a big year—and not just for production. This year the Produced Water Act was signed and enables operators to own produced water as a byproduct and an asset. The act creates a financial incentive to recycle the produced water in future operations, prevent spills by assigning liability, and reducing the usage of fresh water for the arid regions.
Given that 1 barrel of oil requires 4-7 gallons of water to produce and oil plays a major role in New Mexico’s economy—this new act has the potential to protect the community’s water resources, create financial incentives for operators who recycle the produced water and assign positive value to the once worthless byproduct.
OWNERS CONSIDERATIONS FOR 2020
We’ll share a few highlights to support your thinking, but the answer is situationally dependent. If you have questions about your situation, let’s set up a time to talk. Your first consultation is complimentary, so there’s no risk to starting the year better informed.
Renegotiation Season
Many owners signed their first lease during the boom of 2014-2015, which means your second lease (five-year term) may be just around the corner. Review your previous lease agreement carefully. The industry has shifted significantly since that initial boom, so be prepared change requests in your next lease. Not sure what’s fair? Wondering what your next lease may look like? We negotiate thousands of leases, and we’re happy to share our experience with you.
Operator’s Merger & Acquisition Activity
Given the low prices, there’s an industry flurry of operators being merged and acquired. When your lease is impacted by consolidation activity, pay close attention to your accuracy of your payments. The calculations are complex and the ownership transition is often littered with errors. We recommend setting up a Google Alert for each of your operators that include any keyword reference to mergers, acquisitions or possible changes of ownership. This will help you stay on top of any potential or impending activity.
State of the Assets Review
There are many ways to create a succession plan for your mineral rights and producing assets—including setting up a trust. However, beyond the legal and tax implications, there’s an education component. If you’re planning to leave your mineral rights to a family member or nonprofit organization, will they understand the lease terms and responsibilities? Many owners have familial ownership group and the stakeholders want to better understand the assets and industry. Education and advocacy are important components of being a Certified Professional Landman (CPL), so we offer ‘State of the Assets Review’ meetings where we share industry shift research, education on lease terms, present benchmark information and most importantly—answer questions.
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