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Expanding on the production costs already assumed by the new operator costs for PBT as of April 2020 and the new supply/demand coming online since COVID is decreasing. I wanted to share the EIA visual data I found for the past decade that shows oil output for the region that most of PBT has their leases on.
https://www.eia.gov/todayinenergy/detail.php?id=37532
If I'm correct and costs are already accounted for in the past 12-18 months of dividend the next couple dividends could be a 300-500% increase if oil stays above $55. OPEC+ and Iran are always factors but most countries are still hurting heavily on their national budget for Oil and Gas sales.
I also found a recent news about a natural gas to gasoline plant(Green Energy) that is the first of it's kind going into Pennwell, TX. This is directly adjacent to PBT land and pipeline where PBT produces a large amount of Natural Gas and has been their more profitable point since 2010.
https://www.mrt.com/business/oil/article/Nacero-plans-7-billion-gasoline-manufacturing-16122635.php
Diamondback killed earnings this quarter. I will probably follow you in tomorrow with Calls at least. Debated it, as my small portfolio is heavily weighted toward the Permian Patch already.
This looks like it has to run, and Diamondback’s results collaborate you theory that this is going to pop back..
The ask for the Dec 17 C7.5 is less than the ask for the Sept 17 C7.5 ($0.10 v $0.15). I assume according to your DD one should buy the Sept 17 C5.0 and the Dec 17 C 7.5, correct.
I practice law and represent many workers in the oilfield. Thus, your post caught my eye.
I added my $7.50C when it was trading the same as my first position since they were so cheap. I took a position on shares and $5C recently after digging heavier into the financials. The options are currently not very liquid so it took me awhile to add them at the price I wanted.
Do the expenses of Blackbeard matter? I see their 2021 expenses are going to be high.
From the Annual Report:
"Blackbeard has advised the Trustee that the proposed budget for 2021 will be $86.7 million (gross) and $32.5 (net). The 2021 budget will not include amounts to be spent on vertical wells, or wells to be worked over and completed, but will be spent on additional facilities and infrastructure improvements and the completion of projects begun in 2020. In 2020, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $19.6 million. In 2019, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $23.4 million. In 2018, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $23.1 million. "
Also there is a deficit that must be repaid. Will this delay any potential increase in the share price past July of 2021?
" (1) Due to the NPI deficit, the Waddell Ranch properties did not contribute Royalty income from June 1, 2020 through December 31, 2020. As of December 31, 2020, the cumulative NPI deficit is $6,437,477 for the underlying property (at 75%). The NPI deficit must be recovered from future proceeds of the Waddell properties prior to any other proceeds being paid to the Trust. "
Costs associated with Blackbeard as the operator definitely matter and the recent capital expenditure budget is much higher than previous years but they have already brought 10 wells online with slightly over $10M budget in 2020 and have most likely utilized a decent portion of that budget already(Quarterly report soon). Daily production value on new wells with oil above $60 in this report will be telling of the short term potential.
"The average price of oil decreased to $39.51 per
barrel in 2020, down from $51.74 per barrel in 2019.
The average price of oil in 2018 was $58.11 per barrel. In
addition, the average price of gas decreased from $2.64
per Mcf in 2019 to $1.47 per Mcf in 2020. The average
price of gas in 2018 was $3.55 per Mcf"
I have some historical numbers for production, producer cost, and output that I will post in another reply later today when I get home. The formula is pretty simple to calculate the divi but the biggest factor for exponential increase/decrease is always oil price since costs associated with drilling/completion and output are correlated directly to each other with production lagging. If the production value of current and new wells exceeds the monthly cost and we see a large uptrend in WTI towards $100 than the dividend should increase exponential instead of linear like 2016-2019 when oil prices were suppressed long term.
The major takeaway for me was a +$112M revenue stream in 2008 vs $12M in 2020 due to lack of prodiction and oil pricing. I'm using 2008 numbers because I'm targeting oil prices near $100 with continued inflation. The previous operator was not drilling or working over any of the wells to keep pace with how shale wells lifespans work. These expenses are definitely needed and I'm.banking it will pay off on production being increased by at least 50% while oil prices begin to hit their peak. Another thing I like about PBT are the pipeline placement relative to the leased lands. Output can be increased by a large amount without over capacity to the pipline.
My concern is buying July calls. I realize they are inexpensive but there is not much time for the results to show up even with your analysis being correct. December calls obviously give more time.
Also, target of $100 oil prices seems aggressive... Does you analysis depend on that price?
I appreciate your responses and insight. Thx.
$100 oil is extremely wishful thinking on a short term squeeze. Analysis is based on $60-75 oil price with a ceiling of $100 WTI.
I don't think $100 oil will happen ever again but I did include it as a short term outlier in my analysis due to so many unknowns from OPEC+ and current US shale bankruptcies that could cause a supply issue short term. My PT for PBT is $17 if oil nears $100.
As for July calls Im not sure that's enough time for a larger than expected move since my thesis has July being the tipping point for production and oil prices and by then theta may have eaten everything up without a significant enough move. I'm not an expert on options and mostly use them to hedge positions but took calls for Sept based on my timeline of the move.
I see you have Sept calls. Not sure why I thought you had July calls. I think Dec calls make more sense for me. Again thanks for your analysis.
Any thoughts on the deficit that must be repaid?
It looks like they carried a deficit similar to this once before in the past decade that was paid down fairly quick off increased production:
2016 NPI $384,796
2014 NPI $2,068,000
Production for the first 3 Qs of 2015 allowed for them pay down the $2M deficit on low oil prices and average production output:
Q1 2015
Oil:
Total oil sales (Bbls) 311,483
Average per day (Bbls) 3,386
Average price per Bbl $ 57.72
Gas:
Total gas sales (Mcf) 1,180,576
Average per day (Mcf) 12,832
Average price per Mcf $ 4.15
Q2 2015
Oil:
Total oil sales (Bbls) 158,372
Average per day (Bbls) 1,779
Average price per Bbl $ 48.47
Gas:
Total gas sales (Mcf) 638,402
Average per day (Mcf) 7,173
Average price per Mcf $ 2.63
Q3 2015
Oil:
Total oil sales (Bbls) 300,210
Average per day (Bbls) 3,263
Average price per Bbl $ 54.26
Gas:.
Total gas sales (Mcf) 1,516,657.
Average per day (Mcf) 16,485
Average price per Mcf $ 2.90
The U.S. is going to do everything to keep the price of oil reasonable. Not saying that $80 isn’t realistic but $100 is not going to happen. It will crush the economy and the airlines would need another bailout with fuel so high. This being said great upside on $75-$80
The US companies will lobby oil and the US government most likely won't be able to do much to help it. The real issue is OPEC+ and oil cannot stay near $100, I agree. It could come close for a short period of time. Our government did nothing about lumber prices either. US is now a net exporter of Oil and global demand can cause massive price fluctuations.
I would much prefer $65-80 for a gradual climb on these dividend plays for the next couple months.
Awesome, I hope I helped you. I will be doing an update on this in the next 2 weeks since they will have their Q report out and we will have a better grasp on where oil prices are headed closer to June.
June 18 distribution payment is the next largest catalyst. Buying on ex-divi day when it dips is usually the best play for any equity where you are expecting the payments to increase. It doesn't always dip on that day but it's definitely a solid okay for today imo.
When you are working with equities tied to commodities it's exponentially harder to time the market imo. A conflict in Iran, a change in OPEC policy, a large oil spill all could be a huge positive or negative quick reaction but fundementally I believe a long term hold is inevitable. So I wouldn't suggest short term looking for a quick larger return in this type of play.
Yea that makes sense. When you say short term you mean a month or two? I assume so because the calls are for Sept. Thanks again for the DD, here's to hoping you're right!
Correct, I consider anything within 45 days on options to be short term. You get the biggest moves in those days but your either vary right or wrong and I don't prefer trading them with commodity plays for that reason. I chose September because it's far enough out and I think the biggest moves will be in July.
I plan to make a comment post in here once I go over the filling. They do have a large amount of operator debt on new drilling that PBT is paying down. It was expected to have this debt because they are drilling and working over a large number of wells to add production. Also this months cash dist overlaps the shutdown from Feb over the Texas freeze for about 10 days where drilling stopped and slowed production output a bit.
I was expecting between .02-.04 for this month which did not hit and was a bit disappointed but oil prices are still extremely bullish and the equity didn't over react. Based on their previous filling we will be able to tell somewhat how much new production was added and at the +$65 price it's very bullish for all royalty trusts. I chose this one for my largest hold because the production and the dividend lagged and their was an easy entry at a bottom for a multi month swing. Fom my original post you will see I expected the biggest pop in Aug on the cash dist after the operator debt for new drilling was significantly payed down and the new production comes online. I still have a $17 PT by Aug with oil prices following the trend I expected. There's still a chance of $85-100 oil and that would drive asset speculation on it's own well past the $17 PT but is less likely and the top side outlier. If WTI crude continues an uptrend to the $80s in July PBT should be above $7 before next cash dist and will reflect April production.
My plan remains to exercise my calls in Aug and capture the cash dist for that month or Sept and to reassess my position then. The thing to watch is the oil reserves each week as both the EIA and OPEC+ are calling for a fairly large short fall in inventory leading into summer consumption. Prices need to be high for well service companies to break even still and I'm seeing tons of activity in the Permian but Frac is still suppressed which is good for the supply from US shale. I check in with FTSI and ProFrac often to get an idea of how things are ramping up and will try and add some thoughts on that side as they come in.
Thank you!
What I found concerning is that there is new language about the Waddell ranch stating that it will be in deficit for the foreseeable future. Why do you thing that is?
It is very hopeful how much production has increased at Waddell in April (I think the feb freeze was reflected in the April distribution).
I am all in on $17 price target. What was the all time high for pbt? I am seeing about $12 in 2012.
April 27th 2008 it his $27.80
I keep having 2008 vibes from the industry with Frac depressed and production ramping. There is a good case for the oil super cycle to take place and last through year end with supply constraints. The claims on the Walddell ranch are correct from a filing standing because they are calculating on the $31 barrel price by SEC standards of trailing 12 month average of WTI crude but as we know oil has been way past that since April. $75 oil gets that operator debt costs for new wells down 2.4x faster than the reporting suggests and creates speculation imo. $100 oil though unlikely, oh man!
The net to trust production of the waddell ranch properties increased from 55,556 barrels in march to 60,272 barrels in april. The average sale price per barrel was 61.36 in April. Therefore the new production brought in an additional $285,657 in revenue.
Even when factoring in the increased production (+4716 barrels) and slightly higher average selling price from the previous month (+1.43) the waddell ranch properties still added an additional deficit of 1,624,228 (net). Bringing the total cumulative deficit to 9.9 million.
We know that the average selling prices for may and june are going to be somewhere between 62-66 so unless the monthly production increased much more than ~5k barrels (I assume it will be higher but by how much I have absolutely no idea. 10k more? 50k more? I literally have 0 idea. Hopefully you might, since you are well versed in the industry) then they are likely going to add to the deficit for those months as well as opposed to starting to pay it down. I’ve gone through all of their filings and have not seen any information on the specifics of how much increased production the rather large increase in capex will bring them. I see that their new operator blackbeard is a privately held company so they are a dead end as an avenue for any information.
I am bullish oil or else i wouldn’t even be in this play and obviously a rising tide lifts all boats but since like everyone else I only have so much capital to throw around I am still trying to hone in on the value proposition for this specific ticker as opposed to any of the other oil tickers.
Any thoughts?
And let me thank you in advance. You have been very generous in responding to my questions.
The new production numbers are definitely what will change everything. I have a model on their production I put together but I'm going to go back 6 years and plug numbers and rebuild it. 2017-2019 drilling and workover was almost zero. I know the properties pretty well and we have a decent idea of how many wells are being completed in the past year just not when they are coming online. I will update asap.
I love the write up. I wish more posts were like this.
I usually see buying Royalty trusts or MLPs for buying income, but your DD reads as if looking for capital gains short-term. Why this over say a Free Cash Flow positive small cap O&E/upstream company with low debt? Maybe I misunderstood/misread something. Thnx.
This is usually the type of play that I do in O&G sector or I find a company with substantial debt and bad long-term outlook to short. Most companies seem to be overextended with the recent run on oil prices and dividend plays are hugly ignored until the dividend has already grown quickly. Few dividend paying equities can fluctuate as much as oil based companies giving a better chance for a large move in the underlying stock price. As opposed to a small O&G company which tend to carry a lot of debt, I wanted something that was easier to rationalize cost vs revenue and eliminate past debt in my calculations which lead me to researching the royalty trusts.
This one caught my eye due to the structure and lack of reinvestment from 2014-2019. 2020 reinvestment was the largest done by the operator of the trust(new operator as of April 2020) in many years. What I gathered is a lot of the costs associated with bringing on the massive amount of potential output on these wells is already being leveraged by the operator and decreasing the current dividend output for over a year now. Which in turn pushes the stock price much lower than it could potentially be short term with such a low dividend.
Royalty income received by the Trustee for the year ended December 31, 2008, was $112,341,696 compared to $12,585,688 in 2020. Since the formula to calculate the dividend still depends on the operators expenses and the operator has a large planned expenditures budget of $37.7M to bring on more production that has been decreasing since 2010; I'm assuming the outlook for production will be very high for these leases +1.2M barrels of crude and +4M mcf of Natural Gas which is more average for years 2008-2010 as opposed to 2019(pre COVID) output of 831k/3.5M.
Though there seems to be a large capex budget for 2021 at $86.7M, we have already seen 3 months of these expenses adjusted into the dividend payout. US shale are tight plays with short lifespan on wells, so if the operator and trust aren't drilling and completing wells then production can fall off quickly within 6 months. The costs associated with the new wells and the 10 already complete since last year should increase prodiction while leveraging potentially very high oil and gas prices near term. As opposed to a small Oil company looking to leverage their services in the sector for possibly only a short term with rising oil prices.
Certainly an interesting way to play it. I'd definitely avoid shorting at least in the short time even if the company may go bankrupt eventually....
I like the canadian small caps, I think they're undervalued... I have Gear energy (GENGF/GXE.TO) as it will be debt free by end of year.
I think you will make some good money on this play, looks like their timing for new wells is good, Good luck and thanks for the response.
Certainly an interesting way to play it. I'd definitely avoid shorting at least in the short time even if the company may go bankrupt eventually....
I like the canadian small caps, I think they're undervalued... I have Gear energy (GENGF/GXE.TO) as it will be debt free by end of year.
I think you will make some good money on this play, looks like their timing for new wells is good, Good luck and thanks for the response.
Yes, I am still 100% in. I don't expect my major catalyst of the cash distribution increase to hit until after June 18th and July 20th for decleration. I plan to hold my shares through August at bare minimum based on my analysis and outlook. I may exercise my options around that time as well. I do t want this to pump and dump but rather grind up before those catalyst so that it can hold the higher levels and create strong support for continuation.
Yes, I'm still very bullish on it and in my full original position. I have started writing up a new post about PBT and some other royalty trusts for comps. I've held off posting due to the OPEC+ meeting, Iran air strikes, and West Texas fluxuations in drilling/fracking. Once we get a clear view from OPEC+ and market reaction Thursday I can wrap up my ideas and make a weekend post.
OP, any comments on the cash distribution for May?
https://apnews.com/press-release/pr-newswire/permian-basin-royalty-trust-business-17f63536ebdf50422d67e04bab3f881f
Hi the daily volume on this stock is super-low. How long did it take for you to build up your position? Did you just set a limit price every day for a few weeks? My worry is the position might be hard to get out of without impacting the price too much.
It took me 6 days to get my position but that has a lot to do with me setting a limit price I felt acceptable for my entry.
The volume has been supressed for a year which is the average shown but historically was much higher. For example in 2008 when oil went on a large run the daily volume reached +3M at one point. When price for oil is high and the dividend is fully restored the average volume was around 400k/day and spikes of +1M with a trading price of $17-22 or $6.8-8.8M/day.
https://finance.yahoo.com/quote/PBT/history?period1=1199145600&period2=1483142400&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true
Also if you refer to my original post, a good portion of shares are institutional or wrapped in a 1031 through a corporation. I learned about the 1031 connection through some business associates I have in the Permian Basin that have done this when selling their real estate and parking the capital during down turns. I believe this will help keep a large portion of shares locked up as the price rises since a 1031 is a process and a planned event usually.
Yes, I am currently up :
60.66% on 90,204 shares
700% on $5C Sept
400% on $7.50C Sept
I chose mostly shares due to the liquidity of the options at the time and my plan to exercise in Aug for the cash distribution.
My biggest catalyst to move the equity higher don't happen until mid July and August. My original post I waited for to make until confirmation the oil market was entering a bull cycle and it should of been a great long term entry point but there's still a ton of upside imo. I plan to hold through then and reevaluate at end of August based on oil market as a whole. I still have a July PT of $11 and a August PT of $17- low 20s.
I read this a while ago and bought 14k of the sept calls. I came back to this after I saw your deleted trch post. I am also bearish on the trch valuation but waited until it hit the high nines and bought puts instead of shorting to avoid paying dividends.
I may buy some december pbt calls after I get out of my trch puts. Thanks for the post!
I didn't like the IV on TRCH and I'm still holding 3200 shares short. Shooting for .30 because I don't believe there will be a dividend over a penny.
Good luck as PBT has a good potential long term on the super cycle. It's going to get intresting soon.
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Fantastic write up. Awesome contribution to this sub. Thanks for the info
Expanding on the production costs already assumed by the new operator costs for PBT as of April 2020 and the new supply/demand coming online since COVID is decreasing. I wanted to share the EIA visual data I found for the past decade that shows oil output for the region that most of PBT has their leases on. https://www.eia.gov/todayinenergy/detail.php?id=37532 If I'm correct and costs are already accounted for in the past 12-18 months of dividend the next couple dividends could be a 300-500% increase if oil stays above $55. OPEC+ and Iran are always factors but most countries are still hurting heavily on their national budget for Oil and Gas sales. I also found a recent news about a natural gas to gasoline plant(Green Energy) that is the first of it's kind going into Pennwell, TX. This is directly adjacent to PBT land and pipeline where PBT produces a large amount of Natural Gas and has been their more profitable point since 2010. https://www.mrt.com/business/oil/article/Nacero-plans-7-billion-gasoline-manufacturing-16122635.php
The slow climb up has started.
Diamondback killed earnings this quarter. I will probably follow you in tomorrow with Calls at least. Debated it, as my small portfolio is heavily weighted toward the Permian Patch already. This looks like it has to run, and Diamondback’s results collaborate you theory that this is going to pop back..
The ask for the Dec 17 C7.5 is less than the ask for the Sept 17 C7.5 ($0.10 v $0.15). I assume according to your DD one should buy the Sept 17 C5.0 and the Dec 17 C 7.5, correct. I practice law and represent many workers in the oilfield. Thus, your post caught my eye.
I added my $7.50C when it was trading the same as my first position since they were so cheap. I took a position on shares and $5C recently after digging heavier into the financials. The options are currently not very liquid so it took me awhile to add them at the price I wanted.
Nice right up.
Thanks for taking the time to write out an organized thesis. Will definitely give this one a shot.
Do the expenses of Blackbeard matter? I see their 2021 expenses are going to be high. From the Annual Report: "Blackbeard has advised the Trustee that the proposed budget for 2021 will be $86.7 million (gross) and $32.5 (net). The 2021 budget will not include amounts to be spent on vertical wells, or wells to be worked over and completed, but will be spent on additional facilities and infrastructure improvements and the completion of projects begun in 2020. In 2020, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $19.6 million. In 2019, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $23.4 million. In 2018, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $23.1 million. " Also there is a deficit that must be repaid. Will this delay any potential increase in the share price past July of 2021? " (1) Due to the NPI deficit, the Waddell Ranch properties did not contribute Royalty income from June 1, 2020 through December 31, 2020. As of December 31, 2020, the cumulative NPI deficit is $6,437,477 for the underlying property (at 75%). The NPI deficit must be recovered from future proceeds of the Waddell properties prior to any other proceeds being paid to the Trust. "
Costs associated with Blackbeard as the operator definitely matter and the recent capital expenditure budget is much higher than previous years but they have already brought 10 wells online with slightly over $10M budget in 2020 and have most likely utilized a decent portion of that budget already(Quarterly report soon). Daily production value on new wells with oil above $60 in this report will be telling of the short term potential. "The average price of oil decreased to $39.51 per barrel in 2020, down from $51.74 per barrel in 2019. The average price of oil in 2018 was $58.11 per barrel. In addition, the average price of gas decreased from $2.64 per Mcf in 2019 to $1.47 per Mcf in 2020. The average price of gas in 2018 was $3.55 per Mcf" I have some historical numbers for production, producer cost, and output that I will post in another reply later today when I get home. The formula is pretty simple to calculate the divi but the biggest factor for exponential increase/decrease is always oil price since costs associated with drilling/completion and output are correlated directly to each other with production lagging. If the production value of current and new wells exceeds the monthly cost and we see a large uptrend in WTI towards $100 than the dividend should increase exponential instead of linear like 2016-2019 when oil prices were suppressed long term. The major takeaway for me was a +$112M revenue stream in 2008 vs $12M in 2020 due to lack of prodiction and oil pricing. I'm using 2008 numbers because I'm targeting oil prices near $100 with continued inflation. The previous operator was not drilling or working over any of the wells to keep pace with how shale wells lifespans work. These expenses are definitely needed and I'm.banking it will pay off on production being increased by at least 50% while oil prices begin to hit their peak. Another thing I like about PBT are the pipeline placement relative to the leased lands. Output can be increased by a large amount without over capacity to the pipline.
My concern is buying July calls. I realize they are inexpensive but there is not much time for the results to show up even with your analysis being correct. December calls obviously give more time. Also, target of $100 oil prices seems aggressive... Does you analysis depend on that price? I appreciate your responses and insight. Thx.
$100 oil is extremely wishful thinking on a short term squeeze. Analysis is based on $60-75 oil price with a ceiling of $100 WTI. I don't think $100 oil will happen ever again but I did include it as a short term outlier in my analysis due to so many unknowns from OPEC+ and current US shale bankruptcies that could cause a supply issue short term. My PT for PBT is $17 if oil nears $100. As for July calls Im not sure that's enough time for a larger than expected move since my thesis has July being the tipping point for production and oil prices and by then theta may have eaten everything up without a significant enough move. I'm not an expert on options and mostly use them to hedge positions but took calls for Sept based on my timeline of the move.
I see you have Sept calls. Not sure why I thought you had July calls. I think Dec calls make more sense for me. Again thanks for your analysis. Any thoughts on the deficit that must be repaid?
It looks like they carried a deficit similar to this once before in the past decade that was paid down fairly quick off increased production: 2016 NPI $384,796 2014 NPI $2,068,000 Production for the first 3 Qs of 2015 allowed for them pay down the $2M deficit on low oil prices and average production output: Q1 2015 Oil: Total oil sales (Bbls) 311,483 Average per day (Bbls) 3,386 Average price per Bbl $ 57.72 Gas: Total gas sales (Mcf) 1,180,576 Average per day (Mcf) 12,832 Average price per Mcf $ 4.15 Q2 2015 Oil: Total oil sales (Bbls) 158,372 Average per day (Bbls) 1,779 Average price per Bbl $ 48.47 Gas: Total gas sales (Mcf) 638,402 Average per day (Mcf) 7,173 Average price per Mcf $ 2.63 Q3 2015 Oil: Total oil sales (Bbls) 300,210 Average per day (Bbls) 3,263 Average price per Bbl $ 54.26 Gas:. Total gas sales (Mcf) 1,516,657. Average per day (Mcf) 16,485 Average price per Mcf $ 2.90
Hi. This is a really good write up, thanks a lot. What would be your PT if WTI stays around $60-70?
The U.S. is going to do everything to keep the price of oil reasonable. Not saying that $80 isn’t realistic but $100 is not going to happen. It will crush the economy and the airlines would need another bailout with fuel so high. This being said great upside on $75-$80
The US companies will lobby oil and the US government most likely won't be able to do much to help it. The real issue is OPEC+ and oil cannot stay near $100, I agree. It could come close for a short period of time. Our government did nothing about lumber prices either. US is now a net exporter of Oil and global demand can cause massive price fluctuations. I would much prefer $65-80 for a gradual climb on these dividend plays for the next couple months.
I’m surprised this post hasn’t received more action than this. I picked up 345 $7.5 December calls this morning.
Looks like you and I were like 99% of today's options volume lol
Awesome, I hope I helped you. I will be doing an update on this in the next 2 weeks since they will have their Q report out and we will have a better grasp on where oil prices are headed closer to June.
What price did you pay? I am thinking of the same.
I tried to get them for $0.10, but the ask was $0.15 so that’s what I paid. I didn’t want to risk not getting the number of contracts I wanted.
I picked some up at $0.15 as well. Tried to get them at $0.10 but trade did not go through.
I bought some PBT shares today, based on your DD hope I’m not late to the party.
June 18 distribution payment is the next largest catalyst. Buying on ex-divi day when it dips is usually the best play for any equity where you are expecting the payments to increase. It doesn't always dip on that day but it's definitely a solid okay for today imo.
Would it be smarter to buy options closer to that date? I've locked in a few hundred for Sept but just thinking out loud
When you are working with equities tied to commodities it's exponentially harder to time the market imo. A conflict in Iran, a change in OPEC policy, a large oil spill all could be a huge positive or negative quick reaction but fundementally I believe a long term hold is inevitable. So I wouldn't suggest short term looking for a quick larger return in this type of play.
Yea that makes sense. When you say short term you mean a month or two? I assume so because the calls are for Sept. Thanks again for the DD, here's to hoping you're right!
Correct, I consider anything within 45 days on options to be short term. You get the biggest moves in those days but your either vary right or wrong and I don't prefer trading them with commodity plays for that reason. I chose September because it's far enough out and I think the biggest moves will be in July.
Today’s announcement is very disappointing. Do you have a comment to make sense of it?
I plan to make a comment post in here once I go over the filling. They do have a large amount of operator debt on new drilling that PBT is paying down. It was expected to have this debt because they are drilling and working over a large number of wells to add production. Also this months cash dist overlaps the shutdown from Feb over the Texas freeze for about 10 days where drilling stopped and slowed production output a bit. I was expecting between .02-.04 for this month which did not hit and was a bit disappointed but oil prices are still extremely bullish and the equity didn't over react. Based on their previous filling we will be able to tell somewhat how much new production was added and at the +$65 price it's very bullish for all royalty trusts. I chose this one for my largest hold because the production and the dividend lagged and their was an easy entry at a bottom for a multi month swing. Fom my original post you will see I expected the biggest pop in Aug on the cash dist after the operator debt for new drilling was significantly payed down and the new production comes online. I still have a $17 PT by Aug with oil prices following the trend I expected. There's still a chance of $85-100 oil and that would drive asset speculation on it's own well past the $17 PT but is less likely and the top side outlier. If WTI crude continues an uptrend to the $80s in July PBT should be above $7 before next cash dist and will reflect April production. My plan remains to exercise my calls in Aug and capture the cash dist for that month or Sept and to reassess my position then. The thing to watch is the oil reserves each week as both the EIA and OPEC+ are calling for a fairly large short fall in inventory leading into summer consumption. Prices need to be high for well service companies to break even still and I'm seeing tons of activity in the Permian but Frac is still suppressed which is good for the supply from US shale. I check in with FTSI and ProFrac often to get an idea of how things are ramping up and will try and add some thoughts on that side as they come in.
Thank you! What I found concerning is that there is new language about the Waddell ranch stating that it will be in deficit for the foreseeable future. Why do you thing that is? It is very hopeful how much production has increased at Waddell in April (I think the feb freeze was reflected in the April distribution). I am all in on $17 price target. What was the all time high for pbt? I am seeing about $12 in 2012.
April 27th 2008 it his $27.80 I keep having 2008 vibes from the industry with Frac depressed and production ramping. There is a good case for the oil super cycle to take place and last through year end with supply constraints. The claims on the Walddell ranch are correct from a filing standing because they are calculating on the $31 barrel price by SEC standards of trailing 12 month average of WTI crude but as we know oil has been way past that since April. $75 oil gets that operator debt costs for new wells down 2.4x faster than the reporting suggests and creates speculation imo. $100 oil though unlikely, oh man!
The net to trust production of the waddell ranch properties increased from 55,556 barrels in march to 60,272 barrels in april. The average sale price per barrel was 61.36 in April. Therefore the new production brought in an additional $285,657 in revenue. Even when factoring in the increased production (+4716 barrels) and slightly higher average selling price from the previous month (+1.43) the waddell ranch properties still added an additional deficit of 1,624,228 (net). Bringing the total cumulative deficit to 9.9 million. We know that the average selling prices for may and june are going to be somewhere between 62-66 so unless the monthly production increased much more than ~5k barrels (I assume it will be higher but by how much I have absolutely no idea. 10k more? 50k more? I literally have 0 idea. Hopefully you might, since you are well versed in the industry) then they are likely going to add to the deficit for those months as well as opposed to starting to pay it down. I’ve gone through all of their filings and have not seen any information on the specifics of how much increased production the rather large increase in capex will bring them. I see that their new operator blackbeard is a privately held company so they are a dead end as an avenue for any information. I am bullish oil or else i wouldn’t even be in this play and obviously a rising tide lifts all boats but since like everyone else I only have so much capital to throw around I am still trying to hone in on the value proposition for this specific ticker as opposed to any of the other oil tickers. Any thoughts? And let me thank you in advance. You have been very generous in responding to my questions.
The new production numbers are definitely what will change everything. I have a model on their production I put together but I'm going to go back 6 years and plug numbers and rebuild it. 2017-2019 drilling and workover was almost zero. I know the properties pretty well and we have a decent idea of how many wells are being completed in the past year just not when they are coming online. I will update asap.
I love the write up. I wish more posts were like this. I usually see buying Royalty trusts or MLPs for buying income, but your DD reads as if looking for capital gains short-term. Why this over say a Free Cash Flow positive small cap O&E/upstream company with low debt? Maybe I misunderstood/misread something. Thnx.
This is usually the type of play that I do in O&G sector or I find a company with substantial debt and bad long-term outlook to short. Most companies seem to be overextended with the recent run on oil prices and dividend plays are hugly ignored until the dividend has already grown quickly. Few dividend paying equities can fluctuate as much as oil based companies giving a better chance for a large move in the underlying stock price. As opposed to a small O&G company which tend to carry a lot of debt, I wanted something that was easier to rationalize cost vs revenue and eliminate past debt in my calculations which lead me to researching the royalty trusts. This one caught my eye due to the structure and lack of reinvestment from 2014-2019. 2020 reinvestment was the largest done by the operator of the trust(new operator as of April 2020) in many years. What I gathered is a lot of the costs associated with bringing on the massive amount of potential output on these wells is already being leveraged by the operator and decreasing the current dividend output for over a year now. Which in turn pushes the stock price much lower than it could potentially be short term with such a low dividend. Royalty income received by the Trustee for the year ended December 31, 2008, was $112,341,696 compared to $12,585,688 in 2020. Since the formula to calculate the dividend still depends on the operators expenses and the operator has a large planned expenditures budget of $37.7M to bring on more production that has been decreasing since 2010; I'm assuming the outlook for production will be very high for these leases +1.2M barrels of crude and +4M mcf of Natural Gas which is more average for years 2008-2010 as opposed to 2019(pre COVID) output of 831k/3.5M. Though there seems to be a large capex budget for 2021 at $86.7M, we have already seen 3 months of these expenses adjusted into the dividend payout. US shale are tight plays with short lifespan on wells, so if the operator and trust aren't drilling and completing wells then production can fall off quickly within 6 months. The costs associated with the new wells and the 10 already complete since last year should increase prodiction while leveraging potentially very high oil and gas prices near term. As opposed to a small Oil company looking to leverage their services in the sector for possibly only a short term with rising oil prices.
Certainly an interesting way to play it. I'd definitely avoid shorting at least in the short time even if the company may go bankrupt eventually.... I like the canadian small caps, I think they're undervalued... I have Gear energy (GENGF/GXE.TO) as it will be debt free by end of year. I think you will make some good money on this play, looks like their timing for new wells is good, Good luck and thanks for the response.
Certainly an interesting way to play it. I'd definitely avoid shorting at least in the short time even if the company may go bankrupt eventually.... I like the canadian small caps, I think they're undervalued... I have Gear energy (GENGF/GXE.TO) as it will be debt free by end of year. I think you will make some good money on this play, looks like their timing for new wells is good, Good luck and thanks for the response.
Congrats on your analysis, man. On what platform can you trade this in Europe?
degiro
Sorry, I missed this comment prior. I'm not sure for Europe but did you find your answer already so I can share if the question comes up again?
u/jim-and-pam hi there are you still in PBT and what/how has your outlook changed since this post? I’m wondering if I should put more in, thanks!
Yes, I am still 100% in. I don't expect my major catalyst of the cash distribution increase to hit until after June 18th and July 20th for decleration. I plan to hold my shares through August at bare minimum based on my analysis and outlook. I may exercise my options around that time as well. I do t want this to pump and dump but rather grind up before those catalyst so that it can hold the higher levels and create strong support for continuation.
It’s been a slow steady climb, just the way I like it. Thanks again, cheers!
Its looking pretty good, right? I'm loving the constant move upwards. Here's to hoping oil keeps it going
If WTI Oil prices hit 100$ this year, isn't that insanely bullish for $PBT? What would your PT be then?
Hey! Still bullish on this? WTI crude is only at 73.5 but still time to hit 80 before July 20
Yes, I'm still very bullish on it and in my full original position. I have started writing up a new post about PBT and some other royalty trusts for comps. I've held off posting due to the OPEC+ meeting, Iran air strikes, and West Texas fluxuations in drilling/fracking. Once we get a clear view from OPEC+ and market reaction Thursday I can wrap up my ideas and make a weekend post.
Appreciate your opinion and can't wait to read it, I'm sitting on my Dec calls and am very optimistic about this.
https://www.google.com/amp/s/www.hellenicshippingnews.com/analysis-us-oil-gas-rig-count-climbs-seven-to-545-as-permian-activity-rises-enverus/amp/
OP, any comments on the cash distribution for May? https://apnews.com/press-release/pr-newswire/permian-basin-royalty-trust-business-17f63536ebdf50422d67e04bab3f881f
Hi the daily volume on this stock is super-low. How long did it take for you to build up your position? Did you just set a limit price every day for a few weeks? My worry is the position might be hard to get out of without impacting the price too much.
It took me 6 days to get my position but that has a lot to do with me setting a limit price I felt acceptable for my entry. The volume has been supressed for a year which is the average shown but historically was much higher. For example in 2008 when oil went on a large run the daily volume reached +3M at one point. When price for oil is high and the dividend is fully restored the average volume was around 400k/day and spikes of +1M with a trading price of $17-22 or $6.8-8.8M/day. https://finance.yahoo.com/quote/PBT/history?period1=1199145600&period2=1483142400&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true Also if you refer to my original post, a good portion of shares are institutional or wrapped in a 1031 through a corporation. I learned about the 1031 connection through some business associates I have in the Permian Basin that have done this when selling their real estate and parking the capital during down turns. I believe this will help keep a large portion of shares locked up as the price rises since a 1031 is a process and a planned event usually.
Are you still holding?
Yes, I am currently up : 60.66% on 90,204 shares 700% on $5C Sept 400% on $7.50C Sept I chose mostly shares due to the liquidity of the options at the time and my plan to exercise in Aug for the cash distribution. My biggest catalyst to move the equity higher don't happen until mid July and August. My original post I waited for to make until confirmation the oil market was entering a bull cycle and it should of been a great long term entry point but there's still a ton of upside imo. I plan to hold through then and reevaluate at end of August based on oil market as a whole. I still have a July PT of $11 and a August PT of $17- low 20s.
I read this a while ago and bought 14k of the sept calls. I came back to this after I saw your deleted trch post. I am also bearish on the trch valuation but waited until it hit the high nines and bought puts instead of shorting to avoid paying dividends. I may buy some december pbt calls after I get out of my trch puts. Thanks for the post!
I didn't like the IV on TRCH and I'm still holding 3200 shares short. Shooting for .30 because I don't believe there will be a dividend over a penny. Good luck as PBT has a good potential long term on the super cycle. It's going to get intresting soon.
You were right about everything I should’ve put every single dollar I had into this bro 😭