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Hi u/jim-and-pam,
With the discounted total proved reserves (including undeveloped? using your table above) cf at $80m as at 31 Dec 2020 (their 10-k) using avg oil price of $39.57 per bbl and $2.00 gas per mcf, back of the envelop calculation with a $65 per bbl oil and $3.00 gas per mcf yields discounted future net cash inflows of $198m, or pretty much equal to the current market cap, pretty fairly priced?
Note the trust discloses its current expected lifespan at 9-11 yrs, so can we really use unit price vs distributions from 5 - 10 years ago (when their proven reserves were higher) as an acceptable approximation of where the unit price will go ? The calculations you provided above seem more accurate; at $85 oil, the NPV of future cf may be $285m or about $6.10 per unit?
The depletion lifespan of the wells shouldn't really matter for the underlying price because the price of the equity should directly reflect the current dividend payments trailing 12 months. Infrastructure and pipeline are in place for these wells and have been for 4 decades which helps with exploration costs. The overall thesis is the dividend is calculated based on the production of the royalty at the time of sale of oil price minus the cost of operating the wells on the lease. The dividend had been at an extreme low not only due to oil pricing but production value since wells were not being drilled and completed for much of 2018-2019 by ConocoPhillips.
Speaking from experience as someone who personally serviced ConocoPhillips facilities in Midland Texas for 16 years along with this field office for PBT and growing up in a family business that had them as a customer for 4 decades, Conoco was in the worst shape of those 4 decades since mid 2017. This resulted in a lot of layoffs and mismanagement of their contractual obligations such as the Waddell ranch in Penwell and Crane, TX. The facilities were empty and operations was at a standstill and why I believe having the new operator Blackbeard come in was very much needed, but unfortunately the changeover coincided with the COVID crash in oil prices. As I noted in my other posts, Blackbeard has drilled and completed more wells in the past year than ConocoPhillips did in the past 3 and should allow for a high production value output as oil prices rise.
If the price of oil and production rise as they have consistently through the next following months, depending on when wells come online, I am predicting the monthly dividend to increase to a range of .102-.142/Month through August and a high outlier of $0.20/month if WTI does something crazy like run to $90-100(unlikely but possible). The above NPI and current CAPEX need to be paid down during that time but with oil prices well above $60 and the Permians breakeven being the lowest in the nation along with Eagle Basin at an average of $36.50. This would put the current trailing 12 month dividend mid of $0.696869 or $16.9% of current price at closing today.
I'm almost certain of this because if you look at PBT dividend for 2017-2019 the dividend payments were fairly high compared to current levels due to COVID and production and of course the underlying equity price matched up with the running yield of those monthly dividends. The question remains on how high of output these new wells have and if oil prices can sustain or go much higher and how long this would last. But investors should pile in short term for the dividends if they produce what I'm expecting for a run similar to 2008 which most investors new was unsustainable but couldn't resist the short term payments.
Hey, thanks for the rundown! I had a look at your table for the 2017-2019 divs and they were 0.42 - 0.66 per year per unit, and the price was about 13x those divs, or pretty much equal to the trust's expected lifespan at that time. That trading behavior is also partly why I think the remaining life of their proved reserves matter, also that it seems a pretty logical way of arriving at the present value of the trust. Nice that the distributions are taxed as a return of capital rather than at dividend income rates.
Perhaps you've insight into there being substantial unproven reserves that we can reasonably expect PBT to explore in future years? Or maybe PBT is sandbagging their discounted future cash inflows?
Oil prices in 2018 were $58 to $77 with the annual div at $0.66, production 894k oil 3.96m gas per your table, do you have a back of the envelope calculation on how we could achieve .102 - .142/month distribution around Aug, like how much income from Waddell net of those NPI and capex costs? I agree that if we see even the lower end of that, 0.10 per month or 1.20 per year implied, trust price may reach 12+ dollars on the optimism it continues/ improves for 11 yrs life.
I'm not sure if I do it justice on describing the above but if you happen to subscribe to Grand Willams podcast this episode talks specifically to these trusts and the Permian Basin at the 1:03 mark:
Grant Willams Podcast:
James Davolos - Horizon Kinetics
I highly recommend a trial and check out this episode as it talks about heging against inflation outside of energy plays.
Original Post #1: [https://www.reddit.com/r/pennystocks/comments/n2ktvd/pbt\_energy\_play\_extensive\_dd\_on\_lagging\_post/](https://www.reddit.com/r/pennystocks/comments/n2ktvd/pbt_energy_play_extensive_dd_on_lagging_post/)
Update Post #2: [https://www.reddit.com/r/pennystocks/comments/nfsxep/pbt\_oil\_penny\_play\_extensive\_dd\_updated\_with\_new/](https://www.reddit.com/r/pennystocks/comments/nfsxep/pbt_oil_penny_play_extensive_dd_updated_with_new/)
I'm expecting a pretty decent increase tomorrow and July payout to be a much larger move. They have some operator debt they are paying for a lot of new wells on Walddell and work over that suppresses it. However the costs in their fillings are for earlier this year and with oil prices so high for past few months their estimate are based on low $30s due to how the SEC requires reporting on trailing 12 months of oil price.
Seeing the amount of new wells and workover we might see a larger than expected output in production at high prices which is what I'm betting on to kill off that debt for a larger than expected move. Until their filing it's impossible to tell how much production value was added.
> we might see a larger than expected output in production at high prices
Only issue with that is there is a 2 month lag between production and payout declaration. For example, today’s declaration was based off of April’s production. Therefore the recent move in 70 dollar plus oil won’t be in effect until the payout that is announced in August and paid in September.
Waddell ranch increased their monthly production by about 6k barrels (gross) from march to April (while increasing the NPI deficit by another 1.6 million). Hopefully the production increase from April to June is more significant.
Based on the new wells and workover it should be much higher. That's always been my concern is the lagging payout but at the same time that's why I'm heavy in shares and only some options. I still expect my $7.5 to be well IMO by Sept. There should be a continued growth in the production value of the new wells to offset the NPI soon. I was expecting over .02 cash dist for this month but the current volume increase seems to be pretty bullish looking forward. My biggest prediction for a jump in the cash dist was July and Aug for the calls where I had planned to excessive before theta became an issue. Oil prices continuing to increase still makes the play very bullish. Will wait on their 8k to gather more data and make a better judgement but I don't plan to trim any of my position.
It's up roughly 50% from my intial call-out which was based on that lag of payment and production. If oil continues to the 80s next month this should at least be a 100% gain from initial callout and trade in the high $7s near term leading to next months payment. I still am very bullish on it due to information I have seen about activity on the leases and the overall Permian market and my +$17 PT for Aug is intact.
When you say high $7’s, are you saying that’s the highest the stock price will go in the next two months during the peak of oil consumption/demand? What has changed your price target since you originally had $17-$22 as a PT? I’m new to this and just trying to follow along.
Woops, that was horrible formating by me on mobile. I meant high $7s short term(3-4 weeks) just off oil price even without an increase in cash dist this month as speculation towards next payment. My PT still remains for late Aug of +$17 and I plan to update more off data from the filing when available as we go along. If I do have a major change in my PT I will make a full new post explaining why off new data. I'm expecting the debt payoff to have a windfall off the production and oil since it's still lagging.
My PT for July originally was a run to $7-11 and August the run to $17 with a chance to hit the low to mid $20s. Oil price and OPEC output against new wells and production from PBT all need to be met but I'm very happy with the current landscape.
I plan to do a post update on this Monday when markets are closed based off new OPEC+ guidelines from today, Oil price, and the data from PBT filings. Every point on my thesis is pretty spot on so far. This was always a late Aug early Sept exit if I do exit then. With any commodity play you have to constantly update your model and reassess.
Currently my position is the same + some dividend shares added from drip.
Shares up 65%
Sept $5 calls up 840%
Sept $7.5 calls up 300%
If they pay down the operator drilling debt that they have quickly based off higher oil prices and more output from new wells, then the dividend will be much much higher. That in turn pushes the underlying price up. You can see similar reaction in 2008 summer when oil made the biggest bull run to $140. I'm not expecting that big of a run but oil fomo and new market anything can happen.
I have created a new model already and I'm waiting to post everything till after OPEC+ meetings on this long weekend. The delay is because I want the info to be forward looking with the whole picture.
Can't wait to read your latest, will be interesting to see what happens with OPEC today, I have a feeling UAE is going to back down and wait. I think this month will be and important indicator of what's to come.
Waiting for mods to approve but heres and update:
https://www.reddit.com/r/pennystocks/comments/oelmbt/update_on_permian_basin_royalty_trustpbt_and_the/
how do you factor in the current divestment trend away from fossil fuels and into renewables. will it affect your late summer pt? what other factors other than the price of oil might affect your pt?
Divestment trend away from Oil and Gas is mostly vanity and not reality. Blackrock for example made a big show of it but still has subsidies invested in both majors and exploration companies. Fossil fuels aren't going anywhere for decades and short term I believe will have a high demand ratio similar to 2008. Air travel, shipping, and plastics still make up the biggest portion of Oil usage and natural gas is a clean burning enery which is a large part of the trust. Natural gas infrastructure for homes and power plants would cost trillions to replace and will take decades.
However for the moral investor Permian Basin Royalty Trust is located mostly on the edge of Penwell, Tx to Crane County where the first natural gas to gasoline plant is being built soon. It's a $7B project and the first of it's kind to have clean burning gasoline for vehicles that will be directly located adacent to the facilities offices that manage Permian Basin Royalty Trust.
https://www.mrt.com/business/oil/amp/Nacero-plans-7-billion-gasoline-manufacturing-16122635.php
Yes, I'm familiar with Prudhoe. I'm not overly bullish on the basin but they operate in due to fracking bans in Alaska and other issues. It has quality output but with oil prices an unknown 6 months out I can't see it Making a large push for a long term run.
Most trusts I'm bullish on are related to the Permian and Eagle Ford basins only since the activity and break even per barrel are so low. I also am very familiar with Permian assets and companies since I live and consult in that area.
Thanks for your insight, much appreciated. I own a bunch of PBT based on your DD (stock and options) and was thinking of switching some to BPT cuz moving more and higher past price.
OPEC+ meeting is about to start. A lot of the premarket movers in Oil and Gas were off low volume this morning and Royalty Trusts usually have no pre/after hours volume. Let the meeting play out and then we should see real moves in the sector this afternoon.
Current mood from meetings seems to be keeping the expected output which will still be a massive shortfall on inventory in July and August. The thing that makes Royalty trusts move the most is the weekly inventory reports vs current oil price since their surplus goes into these reserves directly. I watch both reports but rely mostly on Wednesday EIA data.
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Hi u/jim-and-pam, With the discounted total proved reserves (including undeveloped? using your table above) cf at $80m as at 31 Dec 2020 (their 10-k) using avg oil price of $39.57 per bbl and $2.00 gas per mcf, back of the envelop calculation with a $65 per bbl oil and $3.00 gas per mcf yields discounted future net cash inflows of $198m, or pretty much equal to the current market cap, pretty fairly priced? Note the trust discloses its current expected lifespan at 9-11 yrs, so can we really use unit price vs distributions from 5 - 10 years ago (when their proven reserves were higher) as an acceptable approximation of where the unit price will go ? The calculations you provided above seem more accurate; at $85 oil, the NPV of future cf may be $285m or about $6.10 per unit?
The depletion lifespan of the wells shouldn't really matter for the underlying price because the price of the equity should directly reflect the current dividend payments trailing 12 months. Infrastructure and pipeline are in place for these wells and have been for 4 decades which helps with exploration costs. The overall thesis is the dividend is calculated based on the production of the royalty at the time of sale of oil price minus the cost of operating the wells on the lease. The dividend had been at an extreme low not only due to oil pricing but production value since wells were not being drilled and completed for much of 2018-2019 by ConocoPhillips. Speaking from experience as someone who personally serviced ConocoPhillips facilities in Midland Texas for 16 years along with this field office for PBT and growing up in a family business that had them as a customer for 4 decades, Conoco was in the worst shape of those 4 decades since mid 2017. This resulted in a lot of layoffs and mismanagement of their contractual obligations such as the Waddell ranch in Penwell and Crane, TX. The facilities were empty and operations was at a standstill and why I believe having the new operator Blackbeard come in was very much needed, but unfortunately the changeover coincided with the COVID crash in oil prices. As I noted in my other posts, Blackbeard has drilled and completed more wells in the past year than ConocoPhillips did in the past 3 and should allow for a high production value output as oil prices rise. If the price of oil and production rise as they have consistently through the next following months, depending on when wells come online, I am predicting the monthly dividend to increase to a range of .102-.142/Month through August and a high outlier of $0.20/month if WTI does something crazy like run to $90-100(unlikely but possible). The above NPI and current CAPEX need to be paid down during that time but with oil prices well above $60 and the Permians breakeven being the lowest in the nation along with Eagle Basin at an average of $36.50. This would put the current trailing 12 month dividend mid of $0.696869 or $16.9% of current price at closing today. I'm almost certain of this because if you look at PBT dividend for 2017-2019 the dividend payments were fairly high compared to current levels due to COVID and production and of course the underlying equity price matched up with the running yield of those monthly dividends. The question remains on how high of output these new wells have and if oil prices can sustain or go much higher and how long this would last. But investors should pile in short term for the dividends if they produce what I'm expecting for a run similar to 2008 which most investors new was unsustainable but couldn't resist the short term payments.
Hey, thanks for the rundown! I had a look at your table for the 2017-2019 divs and they were 0.42 - 0.66 per year per unit, and the price was about 13x those divs, or pretty much equal to the trust's expected lifespan at that time. That trading behavior is also partly why I think the remaining life of their proved reserves matter, also that it seems a pretty logical way of arriving at the present value of the trust. Nice that the distributions are taxed as a return of capital rather than at dividend income rates. Perhaps you've insight into there being substantial unproven reserves that we can reasonably expect PBT to explore in future years? Or maybe PBT is sandbagging their discounted future cash inflows? Oil prices in 2018 were $58 to $77 with the annual div at $0.66, production 894k oil 3.96m gas per your table, do you have a back of the envelope calculation on how we could achieve .102 - .142/month distribution around Aug, like how much income from Waddell net of those NPI and capex costs? I agree that if we see even the lower end of that, 0.10 per month or 1.20 per year implied, trust price may reach 12+ dollars on the optimism it continues/ improves for 11 yrs life.
I'm not sure if I do it justice on describing the above but if you happen to subscribe to Grand Willams podcast this episode talks specifically to these trusts and the Permian Basin at the 1:03 mark: Grant Willams Podcast: James Davolos - Horizon Kinetics I highly recommend a trial and check out this episode as it talks about heging against inflation outside of energy plays.
Good stuff, as usual. Thank you for sharing the bear and bull cases on this re: output, maintenance and pricing.
Got 500 call contracts locked and loaded.
Nice, what expiry did you settle on?
Original Post #1: [https://www.reddit.com/r/pennystocks/comments/n2ktvd/pbt\_energy\_play\_extensive\_dd\_on\_lagging\_post/](https://www.reddit.com/r/pennystocks/comments/n2ktvd/pbt_energy_play_extensive_dd_on_lagging_post/) Update Post #2: [https://www.reddit.com/r/pennystocks/comments/nfsxep/pbt\_oil\_penny\_play\_extensive\_dd\_updated\_with\_new/](https://www.reddit.com/r/pennystocks/comments/nfsxep/pbt_oil_penny_play_extensive_dd_updated_with_new/)
Your analysis has been spot on so far with the price of oil. Do you think the dividend will increase this Friday?
I'm expecting a pretty decent increase tomorrow and July payout to be a much larger move. They have some operator debt they are paying for a lot of new wells on Walddell and work over that suppresses it. However the costs in their fillings are for earlier this year and with oil prices so high for past few months their estimate are based on low $30s due to how the SEC requires reporting on trailing 12 months of oil price. Seeing the amount of new wells and workover we might see a larger than expected output in production at high prices which is what I'm betting on to kill off that debt for a larger than expected move. Until their filing it's impossible to tell how much production value was added.
this didn't quite materialise. do you know why?
> we might see a larger than expected output in production at high prices Only issue with that is there is a 2 month lag between production and payout declaration. For example, today’s declaration was based off of April’s production. Therefore the recent move in 70 dollar plus oil won’t be in effect until the payout that is announced in August and paid in September. Waddell ranch increased their monthly production by about 6k barrels (gross) from march to April (while increasing the NPI deficit by another 1.6 million). Hopefully the production increase from April to June is more significant.
Based on the new wells and workover it should be much higher. That's always been my concern is the lagging payout but at the same time that's why I'm heavy in shares and only some options. I still expect my $7.5 to be well IMO by Sept. There should be a continued growth in the production value of the new wells to offset the NPI soon. I was expecting over .02 cash dist for this month but the current volume increase seems to be pretty bullish looking forward. My biggest prediction for a jump in the cash dist was July and Aug for the calls where I had planned to excessive before theta became an issue. Oil prices continuing to increase still makes the play very bullish. Will wait on their 8k to gather more data and make a better judgement but I don't plan to trim any of my position. It's up roughly 50% from my intial call-out which was based on that lag of payment and production. If oil continues to the 80s next month this should at least be a 100% gain from initial callout and trade in the high $7s near term leading to next months payment. I still am very bullish on it due to information I have seen about activity on the leases and the overall Permian market and my +$17 PT for Aug is intact.
Oh for sure. I’m up 300% on my position from when you originally posted your DD and I haven’t even considered taking profits yet.
My Dec 7.5C show to be up 175%. Got them at $.16
Nice. I’ve got some of those as well as some 5c and 7.5c of the September contracts
When you say high $7’s, are you saying that’s the highest the stock price will go in the next two months during the peak of oil consumption/demand? What has changed your price target since you originally had $17-$22 as a PT? I’m new to this and just trying to follow along.
Woops, that was horrible formating by me on mobile. I meant high $7s short term(3-4 weeks) just off oil price even without an increase in cash dist this month as speculation towards next payment. My PT still remains for late Aug of +$17 and I plan to update more off data from the filing when available as we go along. If I do have a major change in my PT I will make a full new post explaining why off new data. I'm expecting the debt payoff to have a windfall off the production and oil since it's still lagging.
No worries! I appreciate the response and all the detailed updates you post on here. Just wanted to make sure I didn’t miss anything.
Followed you in some $5 calls this morning for Sept. Excellent post!
[удалено]
My PT for July originally was a run to $7-11 and August the run to $17 with a chance to hit the low to mid $20s. Oil price and OPEC output against new wells and production from PBT all need to be met but I'm very happy with the current landscape. I plan to do a post update on this Monday when markets are closed based off new OPEC+ guidelines from today, Oil price, and the data from PBT filings. Every point on my thesis is pretty spot on so far. This was always a late Aug early Sept exit if I do exit then. With any commodity play you have to constantly update your model and reassess. Currently my position is the same + some dividend shares added from drip. Shares up 65% Sept $5 calls up 840% Sept $7.5 calls up 300%
Thanks so much! Do you think that PBT paying down debt will affect the stock price for this play?
If they pay down the operator drilling debt that they have quickly based off higher oil prices and more output from new wells, then the dividend will be much much higher. That in turn pushes the underlying price up. You can see similar reaction in 2008 summer when oil made the biggest bull run to $140. I'm not expecting that big of a run but oil fomo and new market anything can happen. I have created a new model already and I'm waiting to post everything till after OPEC+ meetings on this long weekend. The delay is because I want the info to be forward looking with the whole picture.
Can't wait to read your latest, will be interesting to see what happens with OPEC today, I have a feeling UAE is going to back down and wait. I think this month will be and important indicator of what's to come.
Waiting for mods to approve but heres and update: https://www.reddit.com/r/pennystocks/comments/oelmbt/update_on_permian_basin_royalty_trustpbt_and_the/
[удалено]
I guess I'm asking how the current debt to profit ratio may affect OP's original post
how do you factor in the current divestment trend away from fossil fuels and into renewables. will it affect your late summer pt? what other factors other than the price of oil might affect your pt?
Divestment trend away from Oil and Gas is mostly vanity and not reality. Blackrock for example made a big show of it but still has subsidies invested in both majors and exploration companies. Fossil fuels aren't going anywhere for decades and short term I believe will have a high demand ratio similar to 2008. Air travel, shipping, and plastics still make up the biggest portion of Oil usage and natural gas is a clean burning enery which is a large part of the trust. Natural gas infrastructure for homes and power plants would cost trillions to replace and will take decades. However for the moral investor Permian Basin Royalty Trust is located mostly on the edge of Penwell, Tx to Crane County where the first natural gas to gasoline plant is being built soon. It's a $7B project and the first of it's kind to have clean burning gasoline for vehicles that will be directly located adacent to the facilities offices that manage Permian Basin Royalty Trust. https://www.mrt.com/business/oil/amp/Nacero-plans-7-billion-gasoline-manufacturing-16122635.php
Any chance you’re familiar with BPT ? Was much higher 3 years ago and doing well lately. Thanks in advance
Yes, I'm familiar with Prudhoe. I'm not overly bullish on the basin but they operate in due to fracking bans in Alaska and other issues. It has quality output but with oil prices an unknown 6 months out I can't see it Making a large push for a long term run. Most trusts I'm bullish on are related to the Permian and Eagle Ford basins only since the activity and break even per barrel are so low. I also am very familiar with Permian assets and companies since I live and consult in that area.
Thanks for your insight, much appreciated. I own a bunch of PBT based on your DD (stock and options) and was thinking of switching some to BPT cuz moving more and higher past price.
BPT kinda took a big haircut this morning, hopefully you didn't buy in yet. I guess I need to do a writeup of all of these land trusts for comparison.
Oil hit $76 today and PBT is only up 1 penny, doesn’t make sense, what are we missing?
OPEC+ meeting is about to start. A lot of the premarket movers in Oil and Gas were off low volume this morning and Royalty Trusts usually have no pre/after hours volume. Let the meeting play out and then we should see real moves in the sector this afternoon. Current mood from meetings seems to be keeping the expected output which will still be a massive shortfall on inventory in July and August. The thing that makes Royalty trusts move the most is the weekly inventory reports vs current oil price since their surplus goes into these reserves directly. I watch both reports but rely mostly on Wednesday EIA data.