It’s Time To Take A Serious Look

PLANO, Texas - Sept. 2, 2015 - PRLog -- It’s time to take a serious look...

Over the last year we have seen oil prices drop over 60%, and just this week we hit the $38 mark because of current supply and demand imbalance. We have an over-supply of oil domestically and globally and a decrease in global demand as worldwide economies struggle to grow and even worse, contract.

Historically, oil has always been a highly volatile commodity during both upward and downward price movements. This spring over a period of just a few months we saw oil move from $40 to $60 per barrel. And that’s on the heels of a decline of 60% over several months. In less than a year we saw the market fall 60% and then rise 40%.

The upward trend this spring was due to an optimistic market seeing rig counts drop and assuming that domestic production levels would follow suit (reducing supply should lead to higher prices). To the market’s surprise, that was not the case domestically because of our operators’ gains in efficiencies causing production numbers to stay near the same levels even with fewer rigs running. Add to this the lower market demands and OPEC maintaining production levels, and we have an oil glut with a global economy on the ropes bringing WTI Crude to $38 per barrel last week.

How long we will be at these levels is anyone’s guess, but if we look objectively at the markets, the history of oil’s volatility, long term projections for global energy demand, and the NYMEX Strip pricing for WTI, it’s very difficult not to see an opportunity.

How to play it?

Stocks? Futures? Possibly. Long-term futures are trading at $60 oil, and most everyone believes we will get there eventually.

Here’s what we’re seeing.

In one year’s time, I am finally being presented with opportunities to buy oil and gas minerals at essentially half the price of what everyone in this industry was happily paying a year ago. It’s taken the last nine months to see the sell side re-adjust their expectations, but we’re apparently there now.

How so? We’re able buy properties for the same multiples (a monthly multiple of current cash flow one would need to pay in order to buy a property. i.e. 60 - 70 months is typical) that we would have paid a year ago, but based on production at $40 - $50 oil. Last year we were at $80 - $100. These adjusted purchase prices translate to current yields of anywhere between 8% - 18% based on current commodity prices. What can happen to one’s return if commodity prices appreciate back to $60, $70 or $80 per barrel of oil?

The adage of buy low, sell high rings true.

I think it’s time to take a serious look at minerals and royalties as another way of gaining energy exposure during these multi-year market lows. Hard asset. Current income. Potential for value appreciation.

If you’re interested in learning more about oil and gas royalties, call Legacy Income Properties at (972) 782-9760 or request their free e-book at info@legacyincomeproperties.com.