I watched the movie No Country for Old Men last week for the second time. At first, it made me think about gas prices in West Texas, but then I was reminded of an old Texas oilman joke:
Oilman: “Well, I have some good news and bad news.”
Banker: “Well, what is it?”
Oilman: “The bad news is we didn’t strike any oil where we drilled.”
Banker: “Dang, what could be the good news then?”
Oilman: “We didn’t hit any natural gas either.”
Funny how that is playing out again today and is not a new phenomenon. We saw Waha (West Texas) gas trading deeper into negative territory. The cause of this was based on multiple fundamentals we have highlighted in previous Royalty Interest Weekly articles. Weekend gas traded minus $2 with earlier days in the week trading as low as minus $9. More importantly to royalty owners is that the April index set at minus $.06, with May finishing the week at minus $.33 and June barely above zero. Even though operators transport a portion of their gas away from this regional price disaster, the remainder will be subject to these prices. This will significantly reduce royalty owners’ payments for April and what looks to be the balance of the summer.
However, customers who had taken advantage of an ARP will not feel any of this price pain. They received a lump sum payment based off much higher prices and this price decline will have zero impact on them. An ARP eliminates price volatility during the term of the ARP agreement. What has just happened to Waha will potentially happen again and in other production basins as operators continue to tap energy resources and as new and more efficient technologies emerge. In coming weeks we will discuss how this and other factors will reap havoc on North American energy prices and will likely put downward pressure on prices. Give us a call or email and let us show you some options you can take to mitigate price volatility that impacts your monthly check value through an ARP or other products we offer.
See for yourself what makes Advance Royalty Company the leader in mineral rights ownership.