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Gibson Energy Inc. is betting that swelling oil output in the Permian Basin will fuel continued growth in US crude exports

Gibson bets on Permian strength powering US oil exports growth

Canada’s Gibson Energy Inc. is betting that swelling oil output in the Permian Basin will fuel continued growth in US crude exports, boosting profit from a major Gulf Coast terminal it bought last year for about $1.1 billion.

The acquisition of the South Texas Gateway Terminal — which expanded Gibson beyond its core business of storing and processing Canadian crude in Alberta and Saskatchewan — is seen by analysts as a key earnings driver for the company. While Gibson has plans to generate more revenue from the terminal through physical improvements and enhanced contracts, the deal is also a macro bet on growing US oil exports.

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Source: Bloomberg

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Discover how Overriding Royalty Interests can provide passive income in oil & gas. Learn benefits & risks for savvy investors. Dive in now!

The role of overriding royalty interests in passive income

DISCLAIMER: We are not financial advisors. The content on this website is for educational purposes only and merely cites our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Always remember to make smart decisions and do your own research!

In the realm of passive income, investors constantly seek avenues that offer lucrative returns with minimal effort. Overriding royalty interests (ORIs) emerge as a promising option in this landscape, providing investors with a unique opportunity to generate passive income streams. This article delves into the role of overriding royalty interests, exploring their definition, benefits, and considerations for potential investors.

Understanding The Role of Overriding Royalty Interests

At its core, an overriding royalty interest represents a share of production revenue from a specific oil and gas lease. Unlike traditional royalty interests owned by mineral rights holders, ORIs are typically granted to third parties, such as landowners or investors, without ownership of the underlying mineral rights. Instead, ORI holders receive a percentage of the gross revenue generated from the production of oil, gas, or other minerals from the leased property.

The Benefits of Overriding Royalty Interests

One of the primary advantages of ORIs lies in their passive nature. Once acquired, ORIs require minimal ongoing effort or involvement from the investor. Unlike active business ventures or real estate management, ORIs offer a hands-off approach to generating income, making them an attractive option for individuals seeking to diversify their investment portfolios without significant time or resources.

Additionally, ORIs can serve as a hedge against inflation and market volatility. The value of mineral resources, particularly oil and gas, tends to rise over time, providing ORI holders with a potential for long-term appreciation. Furthermore, ORIs often come with contractual protections, such as minimum royalty payments or lease terms, offering investors a degree of stability and predictability in their income streams.

Considerations for Potential Investors

While ORIs present compelling opportunities for passive income generation, potential investors should approach them with caution and conduct thorough due diligence. Several factors warrant consideration before investing in overriding royalty interests:

Market Conditions: The profitability of ORIs is closely tied to the performance of the oil and gas market. Fluctuations in commodity prices, geopolitical factors, and technological advancements can impact the viability of ORIs as an investment vehicle. Investors should stay informed about market trends and assess the long-term outlook for the industry.

Legal and Regulatory Risks: Oil and gas operations are subject to a complex web of regulations at the local, state, and federal levels. Changes in legislation or environmental policies could affect the profitability of ORIs or impose additional compliance burdens on operators. Investors should seek legal counsel to ensure compliance with applicable laws and regulations.

Operator Reliability: The success of ORIs hinges on the competence and integrity of the operating companies responsible for extracting and selling the mineral resources. Investors should evaluate the track record and financial stability of potential operators before entering into agreements involving ORIs.

Diversification: As with any investment strategy, diversification is key to mitigating risk. While ORIs can offer attractive returns, investors should not allocate their entire portfolio to this asset class. Diversifying across different sectors and asset types can help safeguard against downturns in specific industries.

A Compelling Avenue

Overriding royalty interests represent a compelling avenue for passive income generation, offering investors a share of production revenue from oil, gas, or mineral leases. With their hands-off approach and potential for long-term appreciation, ORIs can serve as valuable additions to investment portfolios. However, prospective investors must conduct thorough due diligence and consider various factors, including market conditions, legal risks, operator reliability, and diversification strategies. By weighing these considerations carefully, investors can harness the benefits of overriding royalty interests while minimizing potential drawbacks.

 

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BP expects high levels of upstream production and a strong performance from its trading business will help it offset the negative impacts of lower oil and gas prices

BP says high production and strong trading will offset oil and gas price slump

Oil and Gas Price Slump

BP on Tuesday said it expects high levels of upstream production and a strong performance from its trading business. It will help offset the negative impacts of lower oil and gas prices. And a drop in the value of Egypt’s currency. That could hit its profits by $1.2 billion in the first quarter of 2024.

The British oil major said it expects to take a $0.2-0.4 billion hit from lower natural gas prices. A $0.3-0.6 billion hit from lower oil prices, and a $0.2 billion hit from the drop in the value of Egypt’s pound.

In a trading update, BP, however, said a strong performance from its oil and gas trading businesses, higher upstream production, and good refining margins will boost its first quarter results and help offset the negative impacts of lower prices.

Shares in BP BP, +0.49% BP, +1.58% increased 2% on Tuesday having gained 11% in the year-to-date. BP is scheduled to publish its first quarter results on May 7.

 

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Source: Market Watch

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Barclays analysts, in restarting coverage of E&Ps, presented anti-hydrocarbon investors with “a reality check on energy transition.”

World needs oil and gas – ’‘Unapologetic,’ Barclays restarts E&P coverage

Barclays’ re-initiation of E&P stock coverage includes a message to anti-E&P investors: “Unapologetic oil and gas.” Does the world needs oil and gas?

The investment landscape for hydrocarbon assets is poised for significant growth. There is evidence by the recent analysis of 18 carefully selected tickers that encompass both integrated oil and gas companies and independent exploration and production (E&P) firms. This diverse group includes industry giants such as Exxon Mobil. Alongside dynamic players like Antero Resources, in addition to the minerals-focused Sitio Royalties. These companies represent a broad spectrum of opportunities for investors, highlighting their adaptability and resilience in a fluctuating market. Barclays analyst Betty Jiang emphasized this perspective in her recent report, noting that E&P companies have not only met the expectations set forth by investors but have exceeded them in various ways. This renewed confidence in the sector is underscored by a combination of strong operational fundamentals and strategic financial management, positioning these firms favorably for potential returns.

Cash Flow is Breakeven

The financial health of the selected companies is particularly compelling. It is characterized by robust balance sheets and low cash flow breakeven prices. These attributes facilitate significant free cash flow generation, which is increasingly vital in an environment where capital discipline is paramount. On average, this cohort of companies is projected to return approximately 20% of their market capitalization. This is over the next three years through a combination of dividends and share buybacks. Moreover, even under prevailing strip pricing conditions. Such a value proposition offers investors a compelling case for engagement in the hydrocarbon sector, signaling a potentially lucrative opportunity for those looking to capitalize on the evolving energy landscape.

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Source: HARTENERGY

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Understand the environmental impact of mineral rights ownership. Learn about factors contributing to impact, evaluation methods, and mitigation strategies for sustainable resource management.

Evaluating the environmental impact of mineral rights ownership

DISCLAIMER: We are not financial advisors. The content on this website is for educational purposes only and merely cites our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Always remember to make smart decisions and do your own research!

Mineral rights ownership is a complex and multifaceted aspect of land management, with significant implications for environmental sustainability. As society continues to rely on natural resources for energy, manufacturing, and various other purposes, the environmental impact of mineral rights ownership becomes increasingly important to evaluate and mitigate. In this comprehensive article, we delve into the various factors that contribute to the environmental impact of mineral rights ownership and discuss strategies for evaluating and addressing these impacts.

Mineral rights ownership grants individuals or entities the legal right to extract and profit from the minerals beneath the surface of a property. These minerals can include oil, natural gas, coal, metals, and other valuable resources. While mineral extraction plays a crucial role in global economies, it also poses significant environmental challenges. Understanding and evaluating the environmental impact of mineral rights ownership is essential for sustainable resource management and environmental protection.

Factors Contributing to Environmental Impact of Mineral Right Ownership

Several factors contribute to the environmental impact of mineral rights ownership:

  • Extraction Methods: The methods used to extract minerals can have varying degrees of environmental impact. For example, surface mining often leads to habitat destruction, soil erosion, and water pollution. While underground mining can cause subsidence and groundwater contamination.
  • Water Usage: Mineral extraction operations require significant amounts of water for processing and transportation. This can lead to competition for water resources, depletion of aquifers, and contamination of surface and groundwater sources.
  • Air Pollution: Activities associated with mineral extraction, such as drilling, blasting, and transportation, can release pollutants into the air, including particulate matter, sulfur dioxide, and volatile organic compounds. These pollutants can have adverse effects on air quality and human health.
  • Waste Generation: Mineral extraction operations produce large quantities of waste materials, including tailings, overburden, and waste rock. Improper disposal of these wastes can contaminate soil, water, and air, leading to ecosystem degradation and health hazards.
  • Ecological Impacts: The disturbance of natural landscapes and ecosystems due to mineral extraction can have far-reaching ecological consequences. Habitat loss, fragmentation, and degradation can threaten biodiversity and disrupt ecosystem functioning.
  • Climate Change: The extraction and combustion of fossil fuels, such as coal, oil, and natural gas, contribute to greenhouse gas emissions and climate change. Addressing the environmental impact of mineral rights ownership requires considering its role in driving climate change and transitioning to renewable energy sources.

Evaluation Methods

Evaluating the environmental impact of mineral right ownership requires a comprehensive approach that considers multiple factors and stakeholders. Some commonly used evaluation methods include:

  • Environmental Impact Assessments (EIAs): EIAs are systematic evaluations of the potential environmental consequences of proposed mineral extraction projects. They involve identifying potential impacts, assessing their significance, and developing strategies to mitigate or minimize adverse effects.
  • Life Cycle Assessments (LCAs): LCAs quantify the environmental impacts of mineral extraction and processing operations throughout their entire life cycle, from extraction to disposal. LCAs consider factors such as energy consumption, resource depletion, emissions, and waste generation.
  • Ecological Risk Assessments: Ecological risk assessments evaluate the potential risks posed by mineral extraction activities to ecosystems and wildlife. They consider factors such as habitat loss, contamination, invasive species introduction, and cumulative impacts.
  • Water and Air Quality Monitoring: Regular monitoring of water and air quality near mineral extraction sites is essential for detecting and mitigating potential environmental contamination. Monitoring programs may involve sampling and analysis of water and air samples for pollutants and other indicators of environmental quality.
  • Stakeholder Engagement: Engaging with local communities, indigenous peoples, environmental organizations, and other stakeholders is crucial for understanding their concerns, priorities, and perspectives regarding mineral rights ownership and its environmental impact. Effective stakeholder engagement can help identify potential risks and opportunities for collaboration and conflict resolution.

Mitigation Strategies

Addressing the environmental impact of mineral right ownership requires implementing effective mitigation strategies. Some common mitigation measures include:

  • Best Management Practices (BMPs): Implementing BMPs can help minimize the environmental impact of mineral extraction operations by reducing pollution, conserving resources, and protecting sensitive habitats.
  • Reclamation and Restoration: Rehabilitating disturbed landscapes and ecosystems through reclamation and restoration efforts can help mitigate the long-term environmental impacts of mineral extraction. This may involve revegetation, soil stabilization, and habitat enhancement.
  • Technology and Innovation: Investing in technological advancements and innovation can help improve the efficiency and sustainability of mineral extraction operations. This includes the development of cleaner extraction methods, energy-efficient technologies, and waste recycling processes.
  • Regulatory Compliance: Ensuring compliance with environmental regulations and standards is essential for minimizing the environmental impact of mineral rights ownership. Governments and regulatory agencies play a critical role in enforcing regulations, monitoring compliance, and holding violators accountable.
  • Community Engagement and Benefit Sharing: Engaging with local communities and sharing the benefits of mineral extraction projects can help build trust, promote social license to operate, and address environmental concerns. This may involve revenue sharing, job creation, infrastructure development, and capacity building initiatives.

Evaluating and addressing the environmental impact of mineral rights ownership is a complex and multifaceted challenge. That requires collaboration, innovation, and commitment from governments, industry stakeholders, and civil society. By adopting a holistic approach that considers the social, economic, and environmental dimensions of mineral extraction. We can work towards achieving sustainable resource management and environmental stewardship for future generations.

 

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By the end of this decade, the report found, the fossil-fuel industry aims to sanction nearly four times this amount – 31bn barrels of oil equivalent – across 64 additional new oil and gas fields.

World set to quadruple oil and gas production by 2030, led by new US projects

The world’s fossil-fuel producers are on track to nearly quadruple oil and gas production from newly approved projects by the end of this decade, with the US leading the way in a surge of activity that threatens to blow apart agreed climate goals, a new report has found.

There can be no new oil and gas infrastructure if the planet is to avoid careering past 1.5C (2.7F) of global heating, above pre-industrial times, the International Energy Agency (IEA) has previously stated. Breaching this warming threshold, agreed to by governments in the Paris climate agreement, will see ever worsening effects such as heatwaves, floods, drought and more, scientists have warned.

But since the IEA’s declaration in 2021, countries and major fossil fuel companies have forged ahead with a glut of new oil and gas activity. At least 20bn barrels of oil equivalent of new oil and gas has been discovered for future drilling since this point, according to the new report by Global Energy Monitor, a San Francisco-based NGO.

Last year, at least 20 oil and gas fields were readied and approved for extraction following discovery, sanctioning the removal of 8bn barrels of oil equivalent. By the end of this decade, the report found, the fossil-fuel industry aims to sanction nearly four times this amount – 31bn barrels of oil equivalent – across 64 additional new oil and gas fields.

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Source: Bulletin of the Atomic Scientists

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Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom.

AI needs a lot of electricity — oil and gas will help

Global energy demand is projected to surge in coming years amid the growth of artificial intelligence, which requires massive amounts of electricity. AI needs a lot of electricity to sustain provision.

The Wall Street Journal reported that big tech companies’ “obsession” with finding enough energy to power the AI boom was the talk of CERA Week by S&P Global last month.

America’s electric grid will need a major boost to power the rapid rise in data centers popping up across the country, and despite the push for renewables, there is growing skepticism that wind and solar energy sources will be able to keep up with the demand. Now, there is a renewed look at old-faithful: fossil fuels.

The Financial Times reported this week that producers believe the AI revolution will “usher in a golden era for natural gas,” with one executive telling the outlet, “Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom.”

But what if AI helps find more energy to power itself?

Phil Flynn, an energy market analyst and FOX Business contributor, says AI will substantially impact the U.S. oil and gas industry not only by increasing efficiency in finding oil, but by assisting in producing it in cleaner ways.

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Source: Fox Business

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Macquarie models U.S. production exiting 2025 at about 14.5 MMbpd, despite expectations for significantly lower crude prices.

US oil production to hit record amidst declining costs, drilling efficiencies

U.S. oil production is set to end the year at a record pace of about 14 MMbpd as falling costs and better drilling efficiency overshadow low growth plans from publicly note down companies, Macquarie Group Ltd. analysts said in a note.

Macquarie be on one’s feet out among analysts last year with its projection of surge U.S. shale production and ultimately show to be true or correct. Its latest forecast comes as shale-oil operators are vowing to rein in production growth for a fourth straight year and consolidation in the industry presents headwinds to further growth. The U.S. government expects production to edge up to 13.2 MMbpd this year.

According to Macquarie’s projections, U.S. production is expect to reach approximately 14.5 million barrels per day by the year 2025. This forecast holds true even in the face of expectations for notably reduced crude prices. The modeling conducted by Macquarie suggests that despite the challenging market conditions and potential price fluctuations, the United States will continue to maintain a robust level of oil production in the coming years.

The prediction of U.S. production levels remaining steady at 14.5 million barrels per day by 2025 serves as a testament to the resilience and adaptability of the domestic oil industry. Despite the volatile nature of the market and the potential for lower prices impacting production, Macquarie’s analysis indicates a strong outlook for oil output in the United States. This projection not only underscores the nation’s significant role in the global oil market but also highlights the strategic planning and operational efficiency of U.S. oil producers in navigating challenging economic conditions.

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Source: Oil & Gas 360

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Energy shares jumped 124% so far since Biden took over at the Oval Office vs. a 65% decline for the comparable period under Trump.

Against all odds American oil soars under Biden

After a sharp decline in the final quarter of 2023, U.S. gasoline, American oil soars prices are surging again in a pivotal election year, offering Republicans a fresh chance to pin the blame on President Biden’s green agenda much to the chagrin of the White House. According to Bloomberg, citing new data from AAA Automobile Club, U.S. gas prices are now on course to hit the dreaded $4-a-gallon mark in the coming months, thanks to rising crude prices amid tightening supplies.

But here’s the kicker: under most key metrics, the U.S. oil and gas industry has flourished under the Biden administration despite its push towards a carbon-free future, proving that not even Washington has sufficient power to single-handedly sway large, globally interconnected markets like oil and gas. GOP White House hopefuls were quick to lambast Biden and his energy policies in the post-Covid oil price rally that hit its zenith shortly after Russia invaded Ukraine.

Yet, Big Oil investors were hardly complaining. According to data compiled by Reuters, profits of the top five publicly traded oil companies, namely Exxon Mobil Corp, Chevron Corp, BP Inc, Shell Plc and TotalEnergies SE rocketed to $410 billion during the first three years of the Biden administration, a 100% increase compared to the corresponding period of Donald Trump’s presidency.

Not surprisingly, oil and gas investors have been handsomely rewarded under the Biden administration, with energy shares jumping 124% so far since Biden took over at the Oval Office vs.-65% decline for the comparable period under Trump.

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Source: Oil Price

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Demand for fossil fuels will not grow indefinitely, but it will probably be more resilient than most may expect.

The staying power of oil and gas pipelines

Most would probably agree that pipelines have long useful lives. If you live in the Deep South or on the East Coast, there is a good chance your gasoline comes from the massive Colonial Pipeline system, which was built 60 years ago. Often, investors ask us about the remaining useful life for pipelines and whether these assets will become stranded as renewable energy and electric vehicles gain traction. Today’s note addresses that question.

Replacing Energy Sources Takes Time

Without digressing into a full energy transition discussion, replacing energy sources takes time. Coal is the most vilified fossil fuel, yet global coal demand is expected to have reached a new all-time high in 2023. The world has needed more and more energy as the global population has grown and economies have developed. Due to the global growth in energy demand, renewables have generally added to the energy mix, instead of displacing fossil fuels to this point (read more).

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Source: ETF Trends

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