Paul is partly correct...... the 1Q 2016 distribution was based on oil hedges that no longer exist. Look for the 2Q 2016 distribution to be about $0.03 per unit at an unhedged average oil price that will average around $35/bbl..... share price is going down much more than itdid on friday - look for sub $1.50/unit before the 2Q distribution......
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The trust has no debt. The trust is simply set up to hold assets of the writing company in order to provide tax breaks. The trust pays a dividend based on its level of production of the underlying asset it holds; this allows the tax rate to be extremely minimal for pumping oil for Sandridge. Sandridge energy itself may go bankrupt but the trust will not. Now that is not to say that whomever comes into possession of Sandridge's assets won't put the wells out to pasture and stop pumping oil. If that happens then you won't receive any dividend obviously because there is no production but the assets themselves still exist.
First of all the dividend can not be "halted" as such. As long as the royalty trust maintains operations it will continue to pay a dividend as stipulated in its articles of incorporation. The issue is if Sandridge has no cash to continue operations then the wells will not be pumping. However, whomever takes over their assets can continue those operations in which case the trust would continue paying a dividend. Of course, it has no obligation to do so nor at what level of production which is where uncertainty lies.
Not only is the stock priced way too high based on expected distributions, but in recent filing it was disclosed that Sandridge is going to look to sell all of its shares in the royalty trusts. Not only will this create tremendous down pressure on the stock but it is highly likely that the situation Sandridge finds itself it will mean dividends will be halted indefinitely (potentially even before next dividend). Abandon ship
Sentiment: Strong Sell
If you look at the dividend notice SDT and SDR filed the last dividend was based on having hedged the price of oil going forward the dividends will be much lower.
"Net cash settlements received under the derivatives agreement for the period were approximately $6.9 million. This increased the average price received per barrel of oil, including the effects of the derivatives and post-production expenses, from $42.36 to $294.39, due to the ratio of the oil volumes hedged to the oil volumes produced and substantial declines in the market prices of oil compared to contract prices, and increased the quarterly income available for distribution to $0.3110 per unit. Although distributions related to production through December 31, 2015 are supported by hedging arrangements, no such arrangements are in place for production attributable to periods after December 31, 2015 and consequently distributions for production periods beginning January 1, 2016 or later should be expected to be dramatically lower than distributions for recent periods. As no additional development wells will be drilled, the Trust’s production is expected to decline each quarter during the remainder of its life."
but the dividend for PER was not hedged, but and the last well has just been drilled so SD get a dividend on their shares which will dilute the dividend by 30%.and drop to 0.144 or about 22% still good.