Foonote 2 to financial stmt Note 5 in the last 10-Q:
(2)Per terms of the net profits interest, MV Partners can reserve up to $1.0 million for future capital expenditures at any time. MV Partners did not withhold any dollar amounts during the nine months ended September 30, 2010 or September 30, 2009. The reserve balance was $0.75 million at each of September 30, 2010 and September 30, 2009.
Bottom line - it looks as if the $750 K gift this last Q wiped out the CapEx reserve. After further looking around, I found out that the $750 K got initially set up in 2006 with a $1 M contribution, and a 2007 $250 K give back, netting to the current $750 gift.
Where in the heck has this $750 K been sitting, why wasn't it put to use, and who collected the interest on money just sitting around?
More importantly, if nothing has been spent on CapEx, and they're giving it all back now, in the face of this 424B disclosure:
"MV Partners expects total capital expenditures for the underlying properties during the next five years will be approximately $17 million."
... then when is that $17 Million hit coming?
CPA, we've covered this just a few days ago. I agree that it's troubling that the cap-ex numbers are a bit nebulous, but they are essentially incorporated into the trusts costs. I've re-posted a previous post below concerning this topic.
On your second point: I disagree with you here. In the most recent annual report MVO had this to say...
As further discussed below, MV Partners' development and workover program will require MV Partners to make future capital expenditures in
connection with the development, exploration and production of oil and gas. Substantially all of the underlying properties are located in mature fields and MV Partners does not expect future costs for the underlying properties to change significantly as compared to recent historical costs other than increases due to increases in the general cost of oilfield services.
As I mentioned in the article the average costs per quarter that is deducted prior to calculating the net profit interest is $6,245,070. This cost is exactly what MV Partners/ MVO is referring to in the section above, and is what will be funding the "workover plan". Barring a huge spike in oilfield service equipment this shouldn't be an issue impacting future distributions. It may actually represent a boon to the trust after the workover plan has ended in 2014, but that's just speculation.
Some costs do not up when the price of oil goes up and some do. For example transportation is not going to vary much with the price of oil. On the other hand, Severance and ad valorem taxes, which ae not insignificant, usually are a fixed percentage of extracted value so if oil goes up 20% so do those taxes. That $6,245,070 figure can vary quite a bit. Is there any breakdown of that number anywhere?
You're thrashing around in the dark jduade.
We don't know how much of general oilfield service costs are normal operating vs. capex. We don't know how much, if any, of the $17 M has been spent. And while that disclosure you point too gives some comfort, it's not near enough in helping to nail down how much future risk there is that the $17 M will unexpectedly rear its ugly head in the near term.
What's so darn hard about MVO disclosing the CapExp info ...
unless, of course, you want to keep shareholders in the dark and allow uncertainty to hang out there.
I'm still looking for the $17 M to cause unanticipated problems in the near term.
Like GPD said, what's troubling to me is the lack of clarity on production rates, cap-ex, and costs going forward. It would be really nice if MV Partners had a conference call to clarify some of these issues. I was feeling very bullish on MVO up until I saw the latest 8-K, which came out after the article I wrote (I'm not looking too smart right now). The recent production and cost numbers were not great, and I'm left hoping that we see stability in costs and production in the next few quarters with higher realized hydrocarbon prices.
The other issue here is that money managers are going to make holding MVO a roller coaster with no real certain direction. The volume today was over 800,000! These factors are making me uneasy.
MV Partners expects total capital expenditures for the underlying properties during the next five years will be approximately $17 million. Of this total, MV Partners contemplates spending approximately $12.8 million to drill approximately 65 development wells in ten project areas and approximately $4.1 million for recompletions and workovers of existing wells. MV Partners expects that these capital projects will add production that will partially reduce the natural decline in production otherwise expected to occur with respect to the underlying properties, as described in more detail below. The trust is not directly obligated to pay any portion of any capital expenditures made with respect to the underlying properties; however, capital expenditures made by MV Partners with respect to the underlying properties will be deducted from the gross proceeds in calculating the net proceeds from which cash will be paid to the trust. As a result, the trust will indirectly bear an 80% (subject to certain limitations during the final three years of the trust, as described below) share of any capital expenditures made with respect to the underlying properties. Accordingly, higher or lower capital expenditures will, in general, directly decrease or increase, respectively, the cash received by the trust in respect of its net profits interest. As the cash received by the trust in respect of the net profits interest will be reduced by the trust's pro rata share of these capital expenditures, MV Partners expects that it will incur capital expenditures with respect to the underlying properties throughout the term of the trust on a basis that balances the impact of the capital expenditures on current cash distributions to the trust unitholders with the longer term benefits of increased oil and natural gas production expected to result from the capital expenditures. In addition, MV Partners may establish a capital reserve of up to $1.0 million in the aggregate at any given time to reduce the impact on distributions of uneven capital expenditure timing.
In other words, MV Partners can spend just about anything they want on cap-ex and just pass 80% of it through to the trust through reduced distributions ? Hopefully it will mean enhanced production, but we only get a fixed number of barrels anyway. So the trust is subsidizing the development of MV Partners oil field, for their benefit after the trust ends.