Mineral rights entitle these firms, including Viper Energy Partners LP and Kimbell Royalty Partners LP, to the first cut of cash once oil and gas wells begin producing. The royalties they receive usually range from about 12% to 25%. Their place at the head of the line for payouts, plus the fact that they bear none of the drilling costs and keep collecting even if producers drill themselves bankrupt, have helped minerals owners outperform most other energy stocks in a year when investor sentiment has collapsed due to low oil and gas prices and profligate spending.
Mineral rights are a uniquely American asset class. In no other country are most mineral rights owned by ordinary citizens. It is also a highly fragmented asset class, akin to rental houses. The National Association of Royalty Owners estimates that there are more than 12 million private owners of mineral rights. Kimbell calculates the total market value of mineral rights at about $550 billion, of which public companies own just 2% or so.
The principal way to acquire mineral rights has usually been to inherit them. “Never sell your minerals” is a marketplace adage. These days, though, that bit of country wisdom is being cast aside by many who have inherited the rights to oil and gas royalties. The result is a consolidation by Wall Street of assets that have long been an integral part of intergenerational family wealth.
Wild that TPL wasn’t mentioned. Thanks to a reader for the heads up on this article!