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Hugoton Royalty Trust Message Board

  • sourdough27a sourdough27a Jun 7, 2012 6:23 PM Flag

    Anyone please feel free to point to my error

    I tried to build a quick and dirty pro forma income statement for the trusts share of the income from the wells. It wasn't easy to do given how little info I have. I used data from the XTO income statement from 2008 to give me a very rough picture of the income and expenses from which the trusts "net profits interest" is derived.

    A rough guess suggests that if all wells are subject to the settlement terms of Frankenhouser, the recovery will amount to an increase of expenses of about 4% of each years gross revenue of the total 10 years of production from the wells or a total of about 40% of one years production at average the average price of the natural gas.

    In 2008, XTO had operating income of about 50% of revenue and net income of about 25% of revenue. The expensing or capitalization of exploratory expenses can throw these numbers way off and we do not know how XTO accounts for the trust wells, but just using these numbers for a quick check suggests that the total cost for all wells if the settlement applies to all wells should be in neighborhood of 1 year and 7 months of the trusts income at average gas prices if trust income is about 25% of revenue. Since gas prices are lower now than average prices for the 10 year period, it would take longer to pay of the settlement, unless profits are negative, in which case we can just kiss our butts goodbye! Well, anyway, I don't know how this large of a recovery can just be attributed to 288 wells if I am ANYWHERE close to reality. THIS IS ALL BEING DONE IN MY HEAD AS I TYPE. I AM JUST BRINGING THIS UP SO THAT SOMEONE MY CORRECT MY FALLACIOUS LOGIC AND HELP BRING CLARITY TO THIS SITUATION.

    As a quick check, a 33,000,000. settlement should equate to about 825,000,000 of production revenue from the wells during the 10 year period. After posting this and no doubt making a complete fool of myself I will have to try and find out what the real production numbers are!

    Everyone have a good night!

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    • No idea if you are right or wrong, I'll try to dig up or find the 10Qs later on but I wanted to say good effort. A rough estimate is better then a shot in the dark.

    • Well, I just checked revenue over the same period of time and my rough numbers do not work at all. Anyone out there capable of pointing out the errors in my logic?

      • 1 Reply to sourdough27a
      • I think I found my error. I should have been applying my calculus to free cash flow to the Royalty Trust and not thinking of the distribution as income. Any comments? I you go back to the 2006 annual report you will see that sales are stated at 216,320,000. Even a 25% increase in owners royalties would only add $11,0000,000 to expenses. Just as a rough guestimate if you multiply the $11,000,000 times 12 years you would get $132,000,000 for the total settlement. HGT had distributable income of $56,600,00. for 2011. Even if every well goes sour, it is only going take 2 to 2.5 years of income to cover the owner's being shorted their royalties, at least based on 2006 numbers! Again, this is just a rough estimate.

        Let me know if you find a flaw in this logic!

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