Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: tk420 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 132  
Subject: Another view from FORTUNE Date: 10/28/2006 9:48 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
This is on the web from August 30 of this year:

(FORTUNE Magazine) -- For investors seeking a sweet 13% dividend or an easy way to play rising oil prices, the BP Prudhoe Bay Royalty Trust seemed like a great bet. (The trust distributes royalties on oil produced from Prudhoe Bay and has no other income stream.)

Then, of course, BP closed part of its Prudhoe Bay oilfield. So while the news stoked supply fears and crude prices briefly topped $76 a barrel, BPT shares slid 13%.

Long before the shutdown, however, declining production was clouding BPT's (Charts) future. The trust receives 16.42% of the net proceeds from the first 90,000 barrels per day from BP Alaska's interest in the area. But net output, which peaked at 550,000 barrels per day in 1991, had slid to 99,000 by May of this year.

"Reserves are being produced out," explains Manuj Nikhanj, an analyst with Ross Smith Energy Group, an independent research firm. "We see production declining to below 90,000 barrels a day in 2008." (BPT asserts production won't dip that low until 2012.)

A state tax hike due this year will further lower trust distributions. "The shutdown is just camouflaging the real problems," says Nikhanj, who issued a negative report on BPT two months before the shutdown.

Adds A.G. Edwards analyst Michael Heim, who issued his own sell rating July 24: "It's simply a matter of declining production and rising costs."

Royalty trusts can be risky. They exist only to distribute assets, typically in the form of a dividend, to unit holders. They are pure, unhedged bets on both a specific commodity and a specific deposit, offering the best (or worst) of both worlds.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Value Hounds

My Big Fat Greek Splat
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement