WSJ: As Drillers Struggle, Shale Investors Seek Safety in Mineral Rights

Mineral rights-owning companies aren’t without risk. Royalty payments are tied to both production levels and commodity prices, neither of which mineral owners typically control. Many shale companies have cut spending on drilling this year, while oil prices have hovered around $60 a barrel. Less production paired with lower prices means the value of royalty payments will drop.

“Part of the risk associated with the investments is you are a passive investor,” said Justin Stolte, a partner at law firm Gibson, Dunn & Crutcher.

Still, the value of large mineral owners such as Texas Pacific Land Trust, formed after Texas and Pacific Railway went bankrupt in the late 1800s, has soared as the booming Permian Basin of West Texas and New Mexico transformed the U.S. into the world’s top oil producer. The price of shares in the trust has more than quadrupled in the past five years to more than $760.

They forgot management agency risk…