Minerals Business Supplement July 2020
While minerals have been the darling of the oil patch over the past couple of years, even this low-cost investment sector is feeling the rush of escaping capital from the industry.
As operators drop rigs at a record pace, the idea of buying minerals just ahead of the drill bit has become a whole lot murkier proposition. And, alas, no one could have imagined that the spigots on existing production would be tightened down via shut-ins as producers protected their commodity from too-low prices—and giving royalties a
burr-cropped haircut in doing so.
But interesting times make for unprecedented opportunities.
Today’s minerals valuations require greater sophistication, with particular consideration being given to risk as the sector evolves.
Private-equity companies and their mineral portfolios have been quick in their response to the dramatic slowdown of drilling activity in the shale patch.
Minerals and royalties companies, favored by investors for the past few years, are now facing their first real test as the pandemic exposes their reliance on E&Ps to generate revenue.
A brutal downcycle hurts all, but don’t mistake mineral portfolios with struggling E&Ps. The nature of their part of the business means less risk but greater stability in times like these.