Boutique Energy IB Question: Are The Oil/Gas Royalty Trusts' Reserves Worth More Left In the Ground As Carbon Credits?

Hi Everyone,

I'm curious to see if anyone has been watching some of the prices in the energy royalty trust space over the past two to three weeks. Right now, due to a lot of year-end tax-loss selling and concerns about conflicts of interest, a lot of royalty trusts are down anywhere from 50-80% over the past few months.

At these levels, some trusts are priced at $0.50/boe reserves.

I am just curious what people in the boutique I-banking or PE space think about these trusts as potential carbon sequestration and offset projects. I'm not exactly sure if carbon is always offset on the producer side, but much of the oil in some of these trusts was discovered before climate change was a thing.

Given that carbon credits are running at $3-10/metric ton, or about $1-3 per barrel, it seems like there might be some opportunities if credit can be earned for closing oil production early.

How the process might look would be for the trust to transfer their mineral rights or conveyances to local governments who are onboard with the idea in exchange for carbon credits. The local goverments would then enact a drilling ban on mineral rights that they own, avoiding most concerns about unconstitutional takings.

Obviously this general idea would take some experienced trust lawyers and people who are well-versed in EU (or other jurisdictions') environmental law.

The operators may not like this idea, but they have also had a lot of opportunities to reduce costs that they simply haven't taken over the past ten years, and it seems to have been boiling to a head over the past several months. Many of these trusts are trading for less than 2-3% of what they were originally sold for, and in some cases the conflicts of interest between the people who own the trust and control the operators are obvious and seem to be damaging the trusts' value.

So in lieu of the operators buying out the trusts, why not convert them into carbon sequestration projects instead and leave the oil in the ground permanently instead?

Curious about peoples' thoughts on this-- whether such a project could work-- both people from the energy side and the carbon credits side.