Selling Royalties When Oil Prices Are High

iStock_000007643005SmallThe price of crude oil, specifically West Texas Intermediate (“WTI”), has increased significantly over the past five months, reaching a high point of $110 on August 29, 2013.  If you are looking to sell your oil and gas royalties, now is the time.  Higher oil prices, of course, mean more money for sellers and the current spike in oil prices is not likely to last.

“Geopolitical risk is driving the market higher,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The escalation in Syria is coming after Libyan production has tumbled. The bulls seem intent on driving WTI close to $115.”  This, in spite of a report from the Energy Information Administration saying U.S. crude stockpiles rose 2.99 million barrels to 362 million last week.   “Absent the Middle Eastern news, we would be moving lower,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston.  “This is a very bearish report, but the market’s ignoring it.”

One question you may ask is, “Why would purchasers, i.e. royalty companies, want to buy royalties when the market price is so high?”  Royalty companies are in the business of buying royalties regardless of the price of oil and natural gas.  Crude oil and natural gas are commodities; their prices fluctuate based on the worldwide and domestic supply and demand.  Since royalty companies buy royalty interests all the time, some purchases are made when prices are high and some when prices are low.  However, due to the large volume of transactions over an extended period of time, the purchase price per transaction averages out.

Ultimately, it is up to the oil and gas royalty owner to decide when or if they want to sell. If you have been thinking about selling, now is a great time to get some more information on the selling process . Please contact us if you have any questions about selling your oil and gas royalties and overriding royalty interests.

Source of quotes:  Bloomberg article WTI Crude Rises to Two-Year High on Syrian Tension By Mark Shenk – Aug 28, 2013 2:30 PM CT

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