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Hugoton Royalty Trust Message Board

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  • s.eranger@sbcglobal.net s.eranger Jan 10, 2012 10:17 AM Flag

    Why is this getting slaughtered?

    I don't believe I've ever seen it this low, but looking at the chart you are correct. I own 5,292 shares...yesterday cost me $5K...I wanted to sell this at $22.00...but my financial adviser simply thinks this will bounce back...and I'm sure it will after I sell.

    I don't see any real reason to hold this all the way down...

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    • It will bounce back...some day.

      But how long NG prices can stay low is anybody's guess. Personally I think it could be years. It's not like the trust can go bankrupt (there is no debt), however there could be a long period of low distributions and low unit prices.

      I really don't know how much reserves the trust has, however one risk may be that they produce too much of their reserves while the price is low. In that respect maybe the lack of capex and dwindling production is smart, ie. since there is a fixed/limited quantity in the ground) why not leave more of it there for a time when prices are (hopefully) better. If you have a long term horizon the drop in price could be a long term buying opportunity for future income.

      • 1 Reply to lisahuang54321
      • The truth hurts...

        Review HGT's historical 10-Ks. They are pretty basic. Underlying gas reserves were 476 Bcf at the end of 2002 and have steadily declined to 315 Bcf at the end of 2010. Net Profits Interests, which is HGT's share, have also declined and ended 2010 at 138 Bcf. Discovery was nil last year and production ran around 25 Bcf. At that rate, give the trust five or six more years before corpus runs out. Then estimate dividends you might receive, discount over whatever horizon you think HGT can pay across at your required rate of return (including a reasonable risk premium), and arrive at NPV. Again, feel free to use your own assumptions, and decide whether gas discovery is to be expected or is more speculative in nature. My analysis suggests HGT can't economically access more gas and units should currently be valued around $6.

        HGT is a trust, not a perpetual annuity.

        With gas so low, I shudder to think where proved reserves might be when the 2011 10-K is released...

 
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