The Royalty Owners Guide to Low Oil


by Randy Smith

With the fall of oil prices, many royalty owners are asking, "What’s next?" But, before we get to some general ideas, we have to understand how we arrived at this point.

America has long dreamed of a nation that is energy dependent and that drive will help drive oil off a cliff. America began producing shale oil at record levels at an average daily production of 9.65 million barrels of oil a day. Just to put this in prospective, Saudi Arabia produces approximately 10.22 million barrels a day. This created a glut of oil that filled storage tanks and overwhelmed buyers, resulting in a drop in prices.

Another reason oil prices plunged was geopolitical issues in the Middle East that prevented OPEC from being able to make the cuts to supply that they have historically There was also a fight for market share that led OPEC’s leader, Saudi Arabia, to publicly proclaim it cares more about its market share than supporting prices.

This has been devastating for domestic oil companies as many were heavily leveraged. Many went bankrupt, and many more are teetering on the edge of bankruptcy. Royalty owners have seen their royalty checks plummet with the price of oil and natural gas but they should not fret, bankruptcies have no effect on royalty payments.

But it does seem brighter days are ahead for the oil and gas industry and royalty interest owners. Oil has rebounded from its lows and areas in Oklahoma (Kingfisher and Blaine counties) have actually seen increased activity in oil and gas leasing and drilling.

And as royalty owners we must always remember that the oil and gas industry has always been cyclical and when times are good, one must certainly plan, save and prepare for when times aren’t so good. In the end the prices have reduced production and the market seems to be rebalancing. We may never be back to $125 for a barrel of oil, but there does seem to be a shimmer of hope after these last few dark years.

For more information on the oil industry, please contact Randy Smith at 272-9241 or rcsmith@andrewsdavis.com.


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1 comment (Add your own)

1. Andy Anderson wrote:
A wonderful job well done, answers a lot of my questions about the oil industry.
frqThanks

Tue, June 21, 2016 @ 8:12 AM

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