To give some balance to all the short postings here. One year ago HGt was ~$23 pps....now $6-$7. If natural gas rises as winter comes on then the payout for the lawsuit will be paid back faster than 18 months. Next I read that the other two lawsuits are less in possible payout. The other lawsuits have not been settled yet and who knows they could go away. I have bought all the way down with most shares being bought below $8. I plan to hold long term as natural gas will not be this cheap for long as more power plants cahnge to natural gas and more is converted to deisel or to run fleets of trucks.
Panic selling equals panic buying which makes me $ everytime.....
I’d agree with your two issues. It’s problematic and perhaps a bit more difficult to determine the true and fair net profits with the XTO/Timberland 15%/20% intercompany agreements in place. Those agreements pertain to and are based on actual sales of pipeline ready NG (residual gas) actually sold by yet another affiliate, Cross Timbers Energy Services (CTES). However, I think the extraction of NGLs from the wellhead gas by Timberland is not addressed at all in those agreements and is never accounted for to the Trust. It is a much easier argument on its own merit, and worth checking into all by itself, even if the net profit for residual gas issue is too complicated and shrouded to unwind.
On the 2nd issue of whether the Trust was unfairly enriched and rightfully libel for the settlement, it certainly doesn’t appear that it should. In accordance with the Trust documents and the filed 10Ks and Qs that show how the Trust distributions are determined, there doesn’t seem to be any relevance.
I wouldn’t expect the possibility of back payments due to past unit holders of record to have any affect on the price of the future units since if you buy the units now you wouldn’t benefit from that sort of settlement. However the possibility of future NGL profits distributions to unit holders could bump the price.
I understand the dilemma.But it's probably OK to agree that you won't disclose confidential information as long as you are free to use it in any lawsuit.
I am still trying to figure out how the Fankhouser settlement is relevant for unit holders, if at all.
The settlement, if I understand it correctly, essentially provides that royalties from April 2012 will be based on CTES/Timberland's actual third party sales price (and NGL proceeds) without any further 15%/20% withholding or discount. OTOH actual costs may be deducted. The 15%/20% discount is mentioned as being applied on p. 9 of the 10-K but I don't know whether that's in agreement with conveyance/trust indenture, or just a practice they have followed for years to compensate Timberland for its services instead of charging Timberland's actual cost in determining "net profits" (which would to be OK).
A second issue is how the conveyance would allow the trust to bear 80% of the settlement cost. Timberland may have been unjustly enriched, but has that generated additional payments to the unit holders?
How are Timberland's profits relevant for determining net profits income?
Anyway, the unit price still reflects the $30 million charge and very much reduced future net profits and/or low distribution yields for the next 18 months and not at all the not entirely remote chance that unit holders are also entitled to back payments and should not bear the $30 million cost of XTO's actions.
To the best of your knowledge, has XTO made a claim on the trust for any of the settlement monies that it agreed to pay to well owners and has XTO stated a cause for such a claim against the unit holders?
Graham, sorry for the delayed response, I haven't looked in on the board the last few weeks.
YES to your last question.
Over the past few months I have been in touch with Helms and Underwood, the law firm representing the land royalty owners. In discussion with the lead lawyer, it appears that the same considerations (i.e. unjust enrichments being taken by XTO affiliates prior to a true arms length, third party sale of the well production of NG and NGLs) that led to the proposed settlement with landholders would also apply to the unit holders. I have entered into a client contract the Helms and Underwood in order to gather the necessary information and explore the unit holders’ legal position. While part of the client contract could evolve into representing the unit holders in a class action suit, we are a long way from that.
I agree with your reading of the situation in regards to the 80/85% arrangement - seems like there should only be a max of 2% profit for an XTO affiliate and the settlement seems to indicate they may have taken more than that.
Additionally, there are huge profits being made by an affiliate of XTO from NGL sales from the wells’ production that are not part of the 80/85% arrangement and which are never accounted for in the HGT distributions.
The legal process has started by inquiring information from the Trustee, Bank of America. If things work out in accordance with the Trust design, B of A will act in our best interests. I hope they do, but don’t see any incentive for them to take on Exxon, other than their reputation. They have hired an outside law firm, Knight and Thomson, to investigate.
Through K&T, B of A has been requested by Helms and Underwood to provide an accounting of the contested XTO affiliate income on my behalf. I’ve been asked to sign a blanket confidentiality agreement by K&T, but I’m hesitant. Bank of America is the Trustee of a publicly traded trust. Does it make sense that they have information that they could legally withhold or designate confidential from the trust's beneficiaries? Maybe some external XTO contracts, but I would think most of it should not be confidential. I’ve requested that they selectively disclose which specific information warrants classification as confidential for a publicly traded royalty trust in accordance with state law, SEC law, and FASB standards.
That’s where it sits.
In full disclosure, I had a sizeable long HGT position intended as a “safe” natural gas commodity investment from 2006 to May 23, when I was stopped out at $7, the same day I finally did enough DD to suspect XTO was not acting in the best interests of the trust and called Helms and Underwood. Currently I own a single HGT share. I’m not a lawyer. I have been a VP for an independent power company that managed a publically traded power trust.
The following paragraphs from a Memorandum Opinion dated 12/10/10 support your position that XTO's two subsidiaries were unjustly enriched, and not XTO ("Defendant")itself:
" Defendant sells the gas produced from the individual wells to its wholly-owned subsidiary, Timberland Gathering and Processing Co., Inc. ("Timberland"), at or near the wellhead. The gas from the various wells is then commingled in Timberland's pipelines and transported to Timberland's Tyrone gas processing plant. In order for Timberland to move the raw gas through its gathering system, it must compress the raw gas using multiple off-lease compressors in various locations on its gathering system, including at the gas processing plant. Exhibit 16 to Plaintiffs' Motion at 114-15, 120-21, 125. Timberland uses some of the gas from the class wells as fuel to operate the compressors. Id. All of the raw gas from the class wells is gathered, commingled, and compressed into the same gathering system, where it travels to the Tyrone plant.... At the plant, Timberland processes the gas to remove impurities and to extract natural gas liquids ("NGLs")... At the tailpipe of the Tyrone plant, Timberland sells the residue gas to Cross Timbers Energy Services, Inc. ("CTES"), another wholly-owned subsidiary of defendant. CTES -- without transporting or performing any other processing -- then sells the gas to an unaffiliated company, DCP Midstream, formerly known as Duke Energy Field Services, LP ("Duke"). Since 2005, Duke has paid CTES the Panhandle Eastern Index price for residue gas less $0.01 per thousand Btu. Exhibit 26 to Plaintiffs' Motion at ¶ 2.
Defendant sells gas to Timberland under two contracts. Under the first contract, executed on March 29, 1996, defendant is paid 80 percent of Timberland's weighted average residue price. Exhibit 20 to Plaintiffs' Motion at art. V, sec. 1. This contract governs the sale of gas from the Chase formation, from which the majority of the wells in the class produce. The second contract was executed on June 1, 1997. This contract, which governs sales of gas from zones below the Chase formation, specifies that defendant receives a price equal to 85 percent of Timberland's weighted average sales price. Exhibit 22 to Plaintiffs' Motion at art. IV, sec. 1(a). Timberland's weighted average sales price is the price Timberland receives from CTES, which, in turn, is the price CTES receives from Duke.... Thus, the price received by defendant, and upon which it bases its royalty calculations, is 80 or 85 percent of the price paid by Duke to CTES."
Under the trust indenture the trust is entitled to 80% of the net proceeds from the sale of oil and gas from the underlying properties. XTO is allowed to deduct production expense, as defined in section 1.16.
(Note that the indenture - of which I don't have a full copy - expressly provides that *gross* proceeds received from an affiliate shall be at least 98% of the proceeds received by that affiliate.)
In its previous press release and the Q1 10-Q the trustee writes that XTO has advised it that the terms of the conveyances governing the net profit interest require the trust to bear its 80% in the settlement.
I can't find any basis for that statement in the limited version of the indenture that I have and it doesn't make sense if, as you correctly pointed out, unit holders were not unjustly enriched in connection with the 80/85% arrangement. Didn't XTO in Fankhouser argue that the 20/15% discount reflected (deemed) production costs? If there is no express basis for that position and BofA can't explain it, shouldn't we get in touch with Fankhouser counsel?
HGT attorneys may represent HGT unit holders but as you point out they are not looking out for our interests.
The lawsuit settlement the XTO and the Land Royalty owners have agreed to is about illegal enrichment by two XTO affiliate companies, Timberland Gathering and Processing for selling natural gas liquids, and Cross Timbers Energy Services for marking up natural gas sales without passing it through. These production profits from the wells should have been passed through the two affiliate companies to XTO Energy. XTO should have paid the Land Royalty holders based on that production total. The remainder of that total after actual expenses should have been split 80/20 with the Trust.
While the Trustee may have told you that the Trust is just a bank account, I’m afraid we are depending on the Trustee’s (Bank of America) attorneys to represent the unit holders’ best interest. IMO since we did not benefit from the unjust enrichment skimmed by the two affiliates and it follows we should not be on the hook for the settlement. No sign yet that B of A sees it that way. Taking it a step further, if the land royalty holders are successful in clawing back unpaid royalties, perhaps the unit holders can be too.
The attorneys that represent HGT are XTO's attorneys. As they only hold a 20% interest, they prefer to settle than to fight a long lengthy expensive battle.
The trust is really a bank account. XTO (Exxon) deposits the profits and the unit holders get the money. At least that is what the trust holder told me when I called her.
see when people panic sell I panic buy.........mkaes me $ everytime.........NG goes up HGT pays off settlement quicker.....watch NG soar with the warm weather and then the cold of winter.....pays off settlement even faster
All in my opinion...Blue