Good morning. My wife owns mineral interests in several OK counties. Seeing on the news the price of oil going up because of the conflict in Iran, she was wondering how long it takes for that price to affect her royalty checks? Is it a daily thing? We don’t know a lot about how this all works. Thanks for your help.
“It depends”… The price you see in the news is usually a futures price for the big buyers at the location listed. It is related to a certain level of quality of crude at a hub point of sale. WTI is West Texas Intermediate sweet crude traded on the New York Mercantile Exhange (NYMEX).. Oklahoma crude is usually listed at several dollars lower at a sales point at Cushing, OK. Henry Hub gas prices are also listed on the NYMEX, but the sales point is in Louisiana, so can be quite different than OK actual sales prices.
Your operator may have contracts in place which often have nothing to do with the WTI or Cushing prices, so that is another factor. Some contracts are long term and not affected by the war uptick. Other contracts may be short term and may be more affected.
Your operator can also be hedging their prices with an insurance policy. Mineral owners do not get the benefit of the hedges. If your operator is not hedged, then you might see some benefit from the new uptick in oil prices. Gas is pretty stable right now.
If you are going to see some movement, it will be one to two months from now. Oil royalties generally show up on statements a month after their sales. Gas royalties generally show up on statements two months after sales.
Keep in mind that the volumes of wells decline over time due to natural pressure losses, so if you have lower volumes month on month, the royalties on the statements are a function of the volumes and the prices received by the operator. You might be the same royalty as the month before if prices are a bit higher, or lower with lower volumes and lower prices or higher with lower volumes and much higher prices-just depends upon both volume and price.