RISK #5
REGULATORY, ENVIRONMENTAL, AND ESG HEADWINDS
For decades, the oil and gas industry has faced significant regulatory and political pressure. Typically termed “ESG,” or Environmental, Social, and Governance influences have increased restrictions on everything from drilling permits to carbon emissions targets. As the ESG-focused capital markets continue to influence investors’ motivations, institutional investors continue to divest from the fossil fuel industry. This shift creates significant long- term uncertainty for mineral rights, calling their future political support and economic viability into doubt.
RISK #6
ILLIQUIDITY AND VALUATION CHALLENGES
Unlike publicly traded stocks or even certain real estate investments, oil and gas mineral rights are incredibly illiquid. There is no open, transparent exchange, and therefore valuations are very subjective. Even worse, often these valuations are based on aggressive (and sometimes unrealistic) assumptions about drilling schedules and commodity prices. Investors who need to exit early are likely to do so at a steep discount, if they can find a buyer at all.
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