Kinda surprised this hasn’t been brought up as a general discussion yet, but will the situation with Russia/ Ukraine & ensuing higher gas prices result in higher royalty payments for owners?
I know checks are 2 months in arrears usually, so it would take awhile to make an impact, but I just wanted to hear thoughts about what this current situation could mean for owners with active (and inactive) wells.
Last year there was a pipeline situaron that raised gas prices, but that didn’t seem to be reflected in our payments (new mexico, Permian basin). Just wondering what the experts with more experience think about this current situation, in terms of ramifications for owners.
You’re talking gas? I thought from your previous posts maybe you have oil royalties.
I’m not an expert, but my hunch is U.S. gas prices may be $3.50 mcf to $5 in next few years, the forward price curve is $3.75 to $4 next five years here in the US. We may see $6 mcf spikes in the US, as we had a few months ago when Russia manipulated spot European prices by reducing their pipeline volumes to Europe. It sure is nice to have $4-$5 mcf gas, it was $2 for so long. My December gas royalty was $3.60 avg price (Delaware Basin Waha pipeline exchange), far better than recent years.
Obviously, Europeans are forced to pay 20-times as much for spot gas in Europe. Although America is blessed with the world’s biggest gas reserves, our LNG export terminals are shipping many tankers to Europe, but we cannot alleviate Europe’s dependance on Russia because we don’t have enough LNG export terminals. The US FERC is sitting on five LNG applications and stalling apparently for environmental reasons, and environmentalist oppose every single LNG permit and file lawsuits. It takes 7-8 years to open a new LNG export terminal, years of permitting, signing long term contracts with foreign utility companies, arranging financing etc. Germany announced they will build two LNG import facilities which is good for our gas royalties, unfortunately, it will be four years before those German LNG plants are ready.
In addition, some predict that Permian Basin growth will result in insufficient gas takeaway pipelines by late 2023, resulting in punitive price differentials, but others think new pipelines will provide expanded gas takeaway from the Permian.
$109 WTI oil is good for my royalties, but I would prefer $80/bbl and stable prices, oil above $100 risks demand destruction from economic recession, switching to electric vehicles, Congress imposing windfall taxes, etc. I cannot imagine oil prices below $80 due to the supply/demand curves, absent some severe global recession, although commodity prices are impossible to predict.
Generally, yes. Any increase in oil and/or natural gas price will filter down to the royalty level if the spot price is being affected enough on a daily basis to move the monthly average up. Leases are generally tied in some way to pay royalties based on actual price received for the products (just with varying definitions of what that is), so if you’re paying more at the pump or on your electric bill, usually there’s some market factors causing the actual price received for that raw commodity to go up as well.
There are some oddball things that happen which don’t translate like this such as the fluke pricing during the Texas Snopocalapse, or if an operator is in a contract locked into certain pricing that shelters it from market movement, but both of those items only don’t universally filter down to royalty owners due to being short-term issues. Eventually, a rising tide lifts all boats.
I wouldn’t call the current movement long-term yet. Far too much instability to lock in the next few months as “up” vs the prior months (though it’s looking likely). As an example, a month ago I was running $80/bbl through my models to project the next 5 years, and today I’m running $84/bbl. I base my forecasts off NYMEX futures.
But yeah, if your lease gets paid based on actual prices for the month, March oil should look 15-20% better than January…so long as the wells stays consistent with production and don’t decline too much A to B. Natural Gas has been bouncing around so much it’ll depend on your market. NGLs will be a blend of the two.
Hi all, thanks for the replies. My question was about the rising price of oil which is causing gasoline prices to rise, or at least as I understand it.
Our wells are actually oil and gas, but I was referring to higher global oil prices, which i always think of when I pay more at the pump.