The EPA’s New Methane Monitoring Mandate: A Tight Squeeze on Arkansas’s Arkoma Basin

An Uncertain Future for Small Producers

The recent Environmental Protection Agency (EPA) rules promulgated under the Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources in the Oil and Natural Gas Sector (2024) signify a pivotal shift in regulatory oversight, impacting the natural gas industry in Arkansas. The future of the gas industry in Arkansas’s Arkoma Basin is now shadowed by uncertainty following the introduction of stringent new EPA regulations aimed at reducing methane emissions. These rules, demanding advanced monitoring and tighter controls, impose significant financial and operational challenges particularly burdensome for the small-scale and marginal well operators that dominate the region. The potential for increased costs could render many existing wells economically unviable, threatening not only the local gas industry but also the broader economic stability of the area. Small producers will grapple with the costs of compliance, the Arkoma Basin of Arkansas will stand at a pivotal juncture, where the sustainability of its gas production industry and the livelihoods dependent on it hang in the balance.

Increased Costs and Compliance Hurdles

The latest regulations from the EPA, which revise the New Source Performance Standards (NSPS) and establish Emissions Guidelines (EG) for existing sources, are designed with the commendable goal of reducing greenhouse gases (GHGs) and volatile organic compounds (VOCs). Yet, for small producers in the Arkoma Basin, these rules translate into formidable financial and operational challenges. The mandate for advanced methane detection technology and regular emissions monitoring presents a steep cost barrier, potentially unsustainable for wells that eke out minimal yields to producers and royalty owners.

This shift could disproportionately impact the Arkoma Basin, where many wells operate on the margins of economic viability. The added financial burden of compliance—ranging from equipment upgrades to the ongoing costs of leak detection and repair—could tip the scales toward the unfeasibility of maintaining active wells. Such an outcome would not only stifle the local gas industry but also undermine the economic underpinnings of the region, where gas production plays a significant role in employment and local tax revenue streams.

Incentives for Litigation: Super Emitters

In the new regulations, the EPA has introduced a “super emitter” program, which seeks to pinpoint and mitigate high-emission events within the oil and gas industry. This program could spell significant challenges for small gas producers, who often operate with thinner margins and older infrastructure.

Under the new rule, facilities that significantly exceed typical emissions levels will be labeled as “super emitters.” This designation could bring about increased regulatory scrutiny for small producers, potentially highlighting them as frequent offenders due to their less sophisticated emission control technologies. The financial ramifications of being pinpointed as a super emitter are non-trivial—small operators may need to undertake costly corrective actions, from upgrading outdated equipment to ramping up emissions monitoring efforts, all of which could strain already tight budgets.

The regulatory framework around the super emitter program also raises concerns about the fairness and accuracy of emissions reporting and identification. Small producers might find themselves embroiled in legal battles, defending their practices, challenging the emissions data, or contesting the EPA’s corrective mandates. Such legal entanglements can divert crucial resources away from productive operations, leading to further financial and operational disruptions.

The centerpiece of the super emitter program is allowing EPA-certified third parties such as environmental groups to identify high emission events using approved technologies, and then report these events to the EPA. The EPA retains the responsibility to verify the data and to formally notify the responsible operators, who must then take corrective actions. While the intent is for the EPA rather third-party notifiers to hold the regulatory and enforcement authority, in practice the program will likely lead to litigation to force EPA to act super emitter reports.

For small gas producers, the super emitter program not only increases the complexity of regulatory compliance but also amplifies the risk of operational disruptions. These businesses could face shutdowns or need to implement major modifications to comply with stringent EPA directives, jeopardizing their operational continuity and financial stability. As the industry adjusts to these new regulations, the impact on small operators will be a critical storyline to watch, potentially reshaping the competitive landscape in favor of larger, better-equipped companies.

Ripple Effects on Royalty Owners

The repercussions of the EPA’s tightening grip extend beyond the operators to touch the lives of those holding royalty interests in these wells. As operational costs climb, the profitability of gas extraction dwindles, thus diminishing the royalties that landowners count on. This financial pinch could be felt acutely in local economies in Western Arkansas, potentially leading to a cascade declining tax revenues and economic decline if wells begin to shut down.

Increased well closures brings about another concern: the proper abandonment of these sites. Mismanaged closures could lead to environmental degradation, a scenario that the regulations aim to prevent but may inadvertently precipitate by pushing operators to financial breaking points.

Flawed Regulatory Impact Analysis

The Regulatory Impact Analysis (RIA) for the EPA’s new standards presents a comprehensive overview but reveals some notable methodological limitations and questionable conclusions, particularly for marginal well operators and small producers.

Firstly, the methodology used for projecting compliance costs and emissions reductions primarily relies on aggregated national data and may not accurately reflect the unique conditions and operational realities of smaller or marginal well operators, such as those in the Arkoma Basin. These operators often deal with older infrastructure and tighter profit margins, which can significantly skew the economic impacts reported. The RIA seems to underestimate the potential financial strain these regulations could impose on small producers, whose ability to absorb higher operational costs is much less than larger entities. The use of a “model plant” approach to estimate costs and emissions reductions potentially oversimplifies the diversity of operations, particularly in regions with older wells or less efficient technologies.

The conclusions drawn from the analysis may be overly optimistic regarding the industry’s ability to adapt to these new standards without substantial economic repercussions. The RIA posits that the compliance costs will be offset by increased gas recovery and reductions in emissions. However, this assumption fails to fully account for the immediate financial burdens that upfront investments in new technology and equipment would impose on small producers. These costs could lead to a significant reduction in operational wells, particularly marginal ones, thereby reducing the production capacity and economic viability of small-scale operations more dramatically than the RIA suggests.

These methodological oversights suggest a need for a more nuanced analysis that considers regional differences, the age of facilities, and the scale of operations to accurately predict the impacts of these regulations on different segments of the industry. Without this, there is a risk that policy makers may not fully understand the detrimental effects on smaller producers and marginal wells, leading to unintended economic and community impacts in areas like the Arkoma Basin.

Impact on Energy Prices

These new rules, stringent and well-meaning as they are, could strike a blow to consumers’ wallets as energy companies grapple with rising operational costs—a classic case of environmental priorities clashing with economic realities.

At first glance, the regulations promise cleaner air and a significant step towards meeting ambitious climate targets. But the devil is in the details—and the cost. Energy producers, especially those operating on the margins with older or less efficient infrastructure, face hefty upfront investments to comply with the new mandates. These costs, inevitably, will not be borne by industry alone; they are likely to trickle down to the average household in the form of higher energy bills. As companies invest in sophisticated methane detection and capture technologies, the financial burden of retrofitting equipment and enhancing operational practices could lead to an uptick in the price of natural gas and oil.

The ripple effects of these regulations may extend beyond direct operational costs. The potential closure of marginal wells, which might no longer be economically viable under the new regime, threatens to reduce domestic oil and gas production. This contraction in supply, in the absence of adequate alternatives, could elevate energy prices further, increasing dependence on imported fuels, which carry their own premium. The specter of rising import bills amidst a domestic production squeeze paints a troubling picture for U.S. energy security and for consumers who will likely face steeper energy costs.

The transition could also spur market volatility as the energy sector adjusts to the new norms. While the shift might accelerate the adoption of renewable energy—a silver lining perhaps—the transition phase could see fluctuating energy prices as markets adapt to changing energy sources and technologies. For consumers, this translates into unpredictability in energy costs, with potential spikes that could strain household budgets.

While the purported environmental benefits of the new methane regulations are clear to the EPA, the economic implications seem to be less so. The pursuit of a “greener” future may come with a steeper price tag than anticipated. As households brace for possible increases in their energy bills, the debate between environmental safeguarding and economic impact simmers.

Shrinking the Energy Market in Arkansas

The new methane regulations could inadvertently tip the scales in favor of big business within the oil and gas industry, leading to a troubling trend of market consolidation that edges out smaller operators. Large energy corporations, with their deeper pockets and greater access to cutting-edge technologies, are better equipped to absorb the upfront costs associated with compliance, from upgrading equipment to implementing sophisticated methane capture systems. In contrast, smaller, “mom and pop” operations might find these financial burdens insurmountable, forcing them to scale back operations or exit the market entirely. This reduction in competition could stifle market diversity and innovation, giving larger players more control over pricing. As a result, this consolidation could lead to higher energy prices for consumers, as fewer companies dominate production with the power to set market terms, further cementing the grip of big business at the expense of smaller, independent operators and the wider economic landscape.

The impact of the new methane regulations is expected to be particularly acute in the Arkoma Basin in Arkansas, an area known for its numerous small-scale, marginal gas wells operated primarily by smaller, local companies. These operators, often lacking the financial resilience and technological capacity of larger entities, may struggle disproportionately with the costs of compliance. As these smaller operators face the stark choice of upgrading their facilities or shutting down, the Arkoma Basin in Arkansas could see a significant decline in the number of active wells. This contraction could lead not only to job losses within the local economy but also to a decrease in gas supply from the region, potentially driving up prices. Moreover, the exit of smaller players could pave the way for larger corporations to consolidate their presence, further centralizing control over the region’s resources and exacerbating the shift towards higher energy costs for consumers and disappearing royalties for royalty owners. Such dynamics underscore the broader economic transformations that environmental regulations, while well-intentioned, can precipitate in vulnerable local markets like the Arkoma Basin.

Arkansas Sues to Roll Back Rule

Numerous states, including Arkansas, have joined forces in a legal challenge against the EPA’s new regulations aimed at reducing emissions from the oil and natural gas sector. This coalition, concerned about the sweeping changes mandated by the agency, argues that the EPA has exceeded its authority—a contention rooted in what is known as the “major questions” doctrine. This legal principle requires clear congressional authorization for any regulatory action that has significant economic or political consequences.

The challenge, filed under case number 24-1059 in the D.C. Circuit, seeks to overturn the rule, arguing that it imposes undue economic burdens and stretches the agency’s regulatory powers beyond the limits intended by Congress. The states’ petition is reminiscent of the pivotal Supreme Court decision in West Virginia v. EPA, where the Court ruled that the EPA needed explicit congressional approval to undertake significant shifts in national energy policies. By referencing this doctrine, the states claim that the EPA’s expansive approach to controlling methane emissions similarly lacks the necessary legislative mandate.

This legal move underscores the states’ view that the EPA’s actions not only demand a substantial reconfiguration of the oil and gas industry but also venture into policy areas that should be reserved for congressional decision-making. The outcome of this lawsuit could significantly influence the scope of the EPA’s regulatory authority, particularly in setting environmental standards that carry broad economic implications.


As the EPA rolls out its latest environmental regulations, the small gas producers of the Arkoma Basin stand at a crossroads. The choices made in the coming months will determine the future not only of the basin’s natural gas industry but also of the communities that depend on it. Balancing ecological responsibility with economic sustainability remains a formidable challenge, one that will require both resilience and ingenuity from the heart of Arkansas.

Understanding the Cambiano Case: Key Takeaways for Arkansas Mineral Owners

In the complex landscape of oil, gas, and mineral law, the recent decision in Cambiano et al. v. Arkansas Oil & Gas Commission et al., 2023 Ark.App. 581, offers crucial insights for mineral owners, legal practitioners, and industry stakeholders. This case reaffirms the legal standards surrounding notice requirements and integration orders—a fundamental process in oil and gas law that combines multiple mineral interests into a single unit for development. Here, we explore the implications of this case and provide essential guidance for mineral owners.

Background of the Case

The Cambiano case centered on an administrative appeal against the Arkansas Oil & Gas Commission’s (AOGC) 2007 integration order. The appellants, Mark and Chris Cambiano, contested the order, claiming that their predecessors in interest, the Conners, had not been provided sufficient notice of the integration proceedings. They argued this lack of notice invalidated the integration of their mineral rights.

Court’s Decision

The Court of Appeals of Arkansas, in affirming the decision of the lower court, held that there was substantial evidence supporting the AOGC’s decisions both in 2007 and in a 2019 hearing where the appellants sought to vacate the integration order. Key findings included:

  • Adequacy of Notice: The court determined that the efforts to notify the Conners, including an eight-month search and publication in a local newspaper, were sufficient under the laws and regulations at the time.
  • Substantial Evidence: The court emphasized that the AOGC’s decisions were supported by substantial evidence, noting that the integration process was neither arbitrary nor capricious.

Implications for Mineral Owners

1. Importance of Understanding Integration Orders

Integration orders can significantly impact mineral owners, as they allow for the pooling of resources and collective development. Mineral owners should be proactive in understanding how these orders work and the circumstances under which they can be challenged.

2. Ensuring Adequate Notice

The Cambiano case highlights the critical role of adequate notice in integration proceedings. Mineral owners should be vigilant in maintaining updated contact information on file with county registers and operators and understand the notification processes used by companies and commissions.

3. Legal Precedents and Rights

This decision sets a precedent that supports the use of reasonable efforts (as defined at the time of action) to locate and notify mineral owners. Owners must be aware of their rights under current laws and how changes in legislation or legal interpretations could affect these rights.

4. Consulting Legal Expertise

Given the complexities of oil and gas law, consulting with a knowledgeable attorney specializing in this field is crucial. Legal expertise can help navigate the intricacies of integration orders, ensure compliance with all procedural requirements, and defend owners’ rights effectively.


The Cambiano case serves as a vital reminder of the procedural and substantive elements critical to the oil and gas industry’s legal framework, particularly in the management and integration of mineral rights. For mineral owners, staying informed and engaged with the legal processes governing their interests is essential. As practitioners in this field, our role is to provide the guidance and representation needed to navigate these challenges successfully.

For more information on how these developments may impact your rights as a mineral owner or to discuss a specific concern, please reach out to our firm. We are here to help ensure that your interests are protected and maximized under the law.

Navigating the Path to Real Estate Succession with Ease: The Advantages of Using a Beneficiary Deed in Arkansas

When it comes to planning for the future of your real estate in Arkansas, ensuring a smooth and efficient transfer of your property to your loved ones is likely at the top of your priority list. Traditional estate planning tools can sometimes lead to complex, time-consuming, and costly probate processes. However, Arkansas residents have a powerful tool at their disposal that can bypass these headaches: the beneficiary deed. To navigate this legal avenue effectively, partnering with an experienced attorney like Mark Robinette can make all the difference.

Understanding the Beneficiary Deed
A beneficiary deed, also known as a transfer-on-death deed, is a legal document that allows property owners to name one or more beneficiaries who will inherit their property upon the owner’s death, without the need for the property to go through probate. This straightforward mechanism is recognized and governed by specific statutes in Arkansas, making it a reliable and efficient estate planning strategy.

Advantages of Using a Beneficiary Deed for Arkansas Real Estate

  1. Avoiding Probate: The most significant benefit of a beneficiary deed is its ability to bypass the probate process. Probate can be lengthy, public, and costly, eroding the estate’s value and delaying the transfer of assets to beneficiaries. By using a beneficiary deed, the property transfers immediately upon death, saving time and money.
  2. Retaining Control: Until your passing, you retain complete control over the property. You can sell, lease, or mortgage the property as you see fit without needing consent from the designated beneficiary. This flexibility is crucial for property owners who may need to adjust their plans as life circumstances change.
  3. Simple to Create and Revoke: Setting up a beneficiary deed with a skilled attorney like Mark Robinette is straightforward, requiring only the completion and recording of the deed with the appropriate county office. Similarly, if you change your mind, revoking or changing a beneficiary deed is simple, providing peace of mind that your estate plan can evolve with your needs.
  4. Cost-Effective: Compared to other estate planning strategies that might require ongoing management or complex trust structures, a beneficiary deed is a cost-effective solution. With the help of Attorney Mark Robinette, your estate planning can be both comprehensive and economically sensible.
  5. Peace of Mind: Knowing that your real estate will seamlessly pass to your loved ones without the burdens of probate can provide unparalleled peace of mind. This efficient transfer mechanism ensures your beneficiaries can focus on honoring your legacy rather than navigating legal complexities.

Why Choose Attorney Mark Robinette?
In the realm of estate planning, experience, and personalized attention matter. Mark Robinette stands out as an attorney who combines extensive knowledge of Arkansas real estate and estate planning laws with a commitment to understanding each client’s unique needs. Whether you’re setting up a beneficiary deed for the first time or looking to integrate it into a broader estate plan, Mark’s expertise will guide you through each step with clarity and confidence.

Embrace the Future with Confidence
Planning for the future of your real estate holdings doesn’t have to be a daunting task. With the right tools and expert guidance, you can ensure a seamless transition that honors your wishes and benefits your loved ones. The beneficiary deed offers a streamlined, effective solution for Arkansas property owners, and with Attorney Mark Robinette’s assistance, you can navigate this process with ease and assurance.

For more information on how to utilize a beneficiary deed in your estate planning or to schedule a consultation, reach out to Mark Robinette today. Embrace the future with confidence, knowing your real estate legacy is in capable hands.

Attorneys: Expand Your Estate Planning Capabilities with an Arkansas Connection

In the intricate world of estate planning, legal professionals recognize the value of specialization and geographical expertise. As an attorney based outside Arkansas, you’re undoubtedly committed to providing comprehensive services to your clients. However, when it comes to dealing with property or trusts within Arkansas, the complexities of state-specific laws can pose a challenge. This is where collaborating with an Arkansas-based attorney, skilled in drawing up deeds and certifications of trust, becomes invaluable.

Why Partner with Arkansas Attorney Mark Robinette?

1. Local Expertise: Arkansas, like every state, has its own set of laws and regulations governing estate planning, real estate, and trusts. An attorney well-versed in these local laws can navigate the nuances, ensuring all legal documents comply with state-specific requirements. This expertise is crucial in avoiding potential legal pitfalls that could impact your client’s estate planning objectives.

2. Efficiency and Reliability: By collaborating with an Arkansas attorney Mark Robinette, you can significantly streamline the process of drafting deeds or certifications of trust for properties located within the state. This partnership means you’re leveraging local knowledge and skills, ensuring a faster turnaround and a higher degree of accuracy and reliability in the documents prepared.

3. Expanded Services: Offering your clients the option to handle their Arkansas-based estate planning needs through your practice enhances your service portfolio. This not only adds value to your existing client relationships but also attracts new clients looking for a one-stop solution for their multi-state estate planning needs.

4. Cost-Effectiveness: Outsourcing specific tasks to a specialized attorney can be more cost-effective than attempting to handle everything in-house, especially when it involves state-specific knowledge. This approach allows you to manage your resources better and offers your clients cost-effective solutions for their estate planning needs.

How Can I Assist You?

As an experienced Arkansas attorney specializing in estate planning, I offer partnership opportunities to out-of-state attorneys looking to expand their services. Here’s how I can assist:

  • Deed Preparation: Whether it’s a warranty deed, quitclaim deed, or any other form of property transfer document, I ensure that all deeds are accurately prepared, reflecting the intentions of the parties involved and complying with Arkansas law.
  • Certifications of Trust: I can draft Certifications of Trust that meet Arkansas requirements, facilitating the seamless management and transfer of trust assets within the state. This document is crucial for trustees needing to prove the existence of the trust without revealing sensitive details.
  • Consultation Services: Beyond document preparation, I offer consultation services to out-of-state attorneys and their clients on Arkansas estate planning laws, providing insights and strategies tailored to each unique situation.
  • Seamless Collaboration: I prioritize effective communication and collaboration with referring attorneys, ensuring that you are kept in the loop at every step and that your client’s needs are met promptly and professionally.

Join Forces for Greater Success

In today’s interconnected world, offering your clients a comprehensive estate planning service that spans multiple states is a significant competitive advantage. By working with an Arkansas attorney with expertise in deeds and certifications of trust, you can ensure your client receives the state-specific expertise and compliance they need.

I invite you to reach out to discuss how we can collaborate to better serve your clients and expand your estate planning services. Together, we can ensure that your clients’ assets in Arkansas are expertly managed and protected, now and in the future.

What are my mineral rights worth?

There’s no perfect way to value producing mineral rights. One quick and dirty approach is the “rule of thumb.” Those following the rule of thumb say that mineral rights are worth a multiple of three to five times the yearly income produced. For example, a mineral right that produces $1,000 a year in royalties would be worth between $3,000 and $5,000 under the rule of thumb.

Professional valuations are available for a price. For most mineral owners evaluating an offer to sell, the cost of the professional valuations are prohibitively expensive. A rough professional opinion from a geologist will cost upwards of $500. In my experience, most geologists follow some version of the rule of thumb.

As a lawyer, I am a fan of factor tests. This is type of legal analysis where a Court takes numerous factors into account to render an opinion. I think a factor test is a solid way to value mineral rights. How might a factor test look for a mineral right? Let’s try!

Factors influencing the value of a mineral right:

  1. What are mineral is being produced? Oil, gas, or both? Is the gas dry or wet? Dry gas is the least valuable, Oil more valuable, wet gas the most valuable.
  2. How much oil or gas is being produced over the most recent six months? How does that compare to the previous year? This a way to know whether the commodity produced is trending down, stable or trending up.
  3. Overall, how long has the interest been in production? Anything that has been in production for more than 6 years has had 80% of its oil and gas produced. Wells in production for more than 20 years are in danger of being shut in or plugged. That is the death of income stream! In some cases, a well drilled only 10 years ago can wind up plugged when the operating costs are too high.
  4. How much income is being produced? Interests that produce $1,000+ per month in income sell for a premium. Interests that produce a yearly check of $100 or less sell for a discount, if at all. Is the income going up, going down, or stable?
  5. What are the trends for the oil or gas prices paid by the producer? Observing the data for the past six months, then the previous year gives a good idea of where the commodity price is headed.
  6. How long has it been since a well was drilled or reworked on the mineral interest? This is a good indicator of whether the well operator is serious about production or just riding the assets into the ground.
  7. Is there any potential to drill more wells? Most states have spacing regulations that dictate the maximum number of wells that can be drilled in a unit. Find out how many wells are in your interest’s unit. Can more wells be fit into the unit under existing rules?
  8. Any new activity in the area? Nearby drilling means there is potential for more income. This can cause the mineral interest to attain a speculative value that sells by the acre rather than based upon the income stream.
  9. What is the state tax environment? Some states do not levy an income tax. Others levy an income tax, property tax, and a severance tax. Mineral interests in states with a more favorable tax environment are more desirable.

So let’s say we have an interest making $200 per year in income that has been producing for 10 years. The trend in income is down for the past three or so years. The interest produces only dry gas. The production volumes are down 15% from three years back. The price of natural gas has been trending higher. There are no new wells or drilling in the area and there is no room for more wells in the unit. The State where the interest is has income tax, property tax, and a severance tax. What’s it worth?

Weighing the factors, the income stream is probably degrading (lower production volumes, no new wells, no room for more wells) but temporarily being buoyed by higher gas prices. It is a smaller, older interest in a unfavorable tax environment. Being older, there is a chance of shut-in or plugging. Based on this factor analysis, the valuation of the mineral interest would be on the lower end of the rule of thumb–maybe a bit less. Fair value could be $500 to $700.

If the same interest was in a State with no income tax, the interest might be worth an $100 or more. If there was room for more drilling and a strong upward trend in gas prices, then perhaps another $200-$500 more is justifiable. This is the beauty of taking a factor approach! We can assign some tangible value (negative or positive) to each factor.

What about mineral rights prices when there is new discovery? In my experience, that is a situation where all bets are off! When the first wells of a new discovery start coming in positive, minerals are typically sold at a per acre price rather than as an income stream. With new discoveries, I’ve seen prices in excess of $10,000 per acre for minerals that have never produced a drop of oil.

Disclaimer: I am not an appraiser, geologist, or reservoir engineer. The information provided is just a generalization I’ve formulated from years of buying and selling oil, gas and brine royalties.

Long term stock market returns–why it’s all about timing. (A MUSING FROM THE GREAT BLIZZARD OF 2021!)

Today, I am stuck frozen in place (literally) in my home. We got an uncharacteristic 8 inches of snow in Little Rock, Arkansas. My files are just a mile away in my office, but the roads are so slick and it’s so cold that there is no hope of getting there. Out of boredom and the general need to feel I accomplished something, I decided to stress test an idea. I am no financial advisor. I’m a lawyer. I don’t give financial advice. I do have, however, an inquisitive mind that does not automatically accept and repeat information disseminated for mass consumption. I like to think about critically about the information fed to me rather than swallow it whole.

The financial press has, since I was a stripling, trumpeted the success of the stock market. One of the claims made is that regularly placing money in a mutual fund that tracks the S&P 500 will generate sufficient returns for a comfortable retirement. My mother used to tell me this. My brother-in-law stock broker used to tell me this. I tried. I made no money. The returns were pathetic. Talking to my friends revealed that some were big fans of the stock market, others were tepid at best.

My personal experience and the varying successes of my friends led me to believe that must be some rational explanation for why the trite and maybe true “invest in index” works for some, but not others.

To test the idea, I downloaded a table that had the yearly return of the S&P 500 from 1992 to 2020. In addition, I downloaded a table with the rate of inflation for the same time period. I deducted the rate of inflation from the rate of return to arrive at an inflation-adjusted return. It is far better information when inflation is figured into the rate. It will show how much of the return was real growth–that is, not due to the general expansion of the size of the economy.

I took the inflation-adjusted return and applied it to a single, equivalent, annual investment over each year since 1992. My goal was to answer the question: If I invested X dollars in the S&P 500 every year since Y year, how much would I have in 2020? For example, if I put $10,000 a year in the S&P 500 since 1992, how much would I now have? The goal is to see if the year that one commences investing has any significant impact on total return.

My hypothesis is that the variation in adjusted inflation rates of return from year to year is large enough that if you began your investment on a bad year or a run of bad years, the losses to the investment principle would be great enough that you’d see significantly lower overall returns than someone who started on a good year and had a nice run of good years at the outset of their investment.

Here is what I found:

Start YearEnding Total ReturnAvg. Ann. Return
Total and average annual rate of return for a constant, annual investment in the S&P 500 by starting year–data ends in 2020.

This was eye-opening to say the least!!! I hit the workforce in 1998. My investing started then. I always wondered why my S&P 500 index fund never did much of anything for me. The reason, as it turns out, was pretty simple. In 1998 and 1999, there was 23.67% and 17.23% growth, respectively. The years 2000, 2001, and 2002, saw negative rates of -11.64%, -15.34% and -26.77%. If we look at a plugged-in investment value of $10,000 per year, the tally for the first five years looks like this:

Starting in 1998, the $50,000 in principle investment would be worth only $32,428.84.

By following the “set it and forget it” advice of automatic, period investing in an index fund starting in 1998, the principle value of the investment was greatly diminished in the first five years. A person who started investing $10,000 of his salary in 1998 until 2020 would have an inflation-adjusted $466,417.50 today. That is a paltry 4.3% rate of return over 22 years! If you started in 1998, there was run of bad luck in the first five years: The dot com bubble burst, the Y2K scare happened, the 9/11 attacks occurred, and then the 2nd Gulf War started.

I had a friend bragging about how great he did in the stock market after he retired from the military. He was collecting his military pension, then went to work for the VA as a civilian. He invested in the federal thrift savings plan to the maximum. The figure he threw out was kind of shocking considering how little time it seemed compared to my beginnings in investments 22 years ago in 1998. He started his VA job in 2008. Based on $10,000 a year, the figure he cited was probably correct. A person who started investing in 2008 with $10,000 a year in an index type fund like the federal TSP would expect to return about 340% over the time period for annual rate of 20% (inflation-adjusted) over 12 years. In absolute dollars, my friend said he had $230,000. That is about what one would predict ($247,884 is the predicted for $10,000 a year in the S&P since 2008).

The difference between my friend and I was timing–dumb luck! Had I started working and investing in 2002 rather than 1998, I would have had an annual rate of 11.3%. That is still not his blistering 20% rate of return, but I’d be in a much better position than I am.

My conclusion is that consistent and steady investing in an index fund over many years is not an automatic path to financial independence. Much of it is just plain luck. How things go for the first few years or so makes all the difference in the final outcome.

Just for yucks, how would I have done had I bought gold all these years like some sort of doomsday prepper?

YearPrice/ounceYearly StakeOunces Purchased
Total Ounces382.1
Total Value$628,235.52
Return from Gold-not adjusted for inflation

For accuracy’s sake, I must show the non-inflation rate of return for my stock market stake. Removing inflation and investing $10,000 a year since 1998 in the S&P would be a total return of $602,864.92. Gold did better! I note, however, that gold suffers a 28% capital gains tax rate, so I don’t think that would be a viable option for investing. One must liquidate the gold into cash to eat it! One could sell a lot purchased some time ago to dodge capital gains, but eventually, the government will get their money. In this case, $175,905.94 in capital gains would due on the gold. Only $90,429.69 (15%) would be due on the stocks. Of course, if you invested in the stocks within a 401k, you’d pay ordinary income on it which may be less than 15%, depending on the person.

Hoping that the roads are clear enough to get back to my files tomorrow!

My Best,

Mark Robinette

The Lithium Royalty Conundrum: The Challenge of Pricing Lithium in Arkansas’s Brine

In the heart of South Arkansas, amidst the many pine plantations and oil fields, a groundbreaking discovery has been made – Lithium containing brine. This find isn’t just a stroke of geological luck; it’s a potential game-changer in the global push towards renewable energy. However, this exciting prospect brings a significant challenge: fitting this new discovery into the framework of Arkansas’s brine royalty statute, a legislation born of a different era. Let’s dive into how this statute might be applied to the burgeoning Lithium market.

Unpacking the Brine Royalty Statute: A Glimpse into Arkansas’s Legal Framework

Arkansas’s statute 15-76-315, originally designed for traditional brine elements like bromine, now faces the task of encompassing Lithium. This statute sets forth how brine value is determined, mandating a minimum royalty payment and placing the burden of proof for fair market value on the operator. It’s a robust framework, but Lithium, with its high market demand and lack of historical data in Arkansas, poses unique challenges.

Lithium’s Legal Labyrinth: Charting Unfamiliar Territory

Traditionally extracted substances such as bromine are covered under the per-acre formula provided by the statute. This formula sets a fixed price for all substances contained in brine as of 1979. For new substances such as Lithium, the statute relies on actual sales data to establish brine value. However, without existing commercial Lithium production in Arkansas, there’s no local sales data to lean on. This gap necessitates a novel approach to valuation, possibly looking towards global Lithium market prices or cost-based estimates. With Lithium’s fluctuating global prices, setting a ‘fair and reasonable’ market value, as required by the statute, is a daunting task. This will likely be a focal point of the ongoing administrative process before the Arkansas Oil and Gas Commission (AOGC) involving intricate proceedings involving operators and landowners.

Potential Scenarios and Their Implications

If the AOGC leans towards global market prices for valuation, it could result in lucrative royalties. However, this might also lead to volatility in payments due to market fluctuations. There’s potential for Arkansas to pioneer a new model that factors in extraction costs, global demand, and environmental impacts. Such a model could be a blueprint for other regions.

As Arkansas stands on the cusp of a Lithium revolution, the path forward is as exciting as it is complex. The state’s administrative process is not just about setting a price tag on a new resource; it’s about envisioning a sustainable and equitable future in resource management. Arkansas’s approach to this unique challenge could become a model for other states and countries with untapped Lithium reserves.

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