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Hugoton Royalty Trust Message Board

  • canudigm canudigm Aug 4, 2013 3:36 PM Flag

    This board is ignorant about decline in production

    You people are dreaming that gas prices are going to make more gas and production appear. This is a 40+ year old gas field, not a 3-year old shale field.
    I went through 10-K since 2002 and looked at average daily production, average gas price, and development costs and put them in a chart. If you did that you would see these facts:
    1. No matter what the price of gas, no matter how much they spend to develop, production keeps dropping each and every year.
    2. In 2006 development costs of $ 51,700,000 were taken out of distributions. Despite those enormous costs, production fell in 2007. BTW, $ 51,700,000 is TWICE total 2012 revenues. If HGT had to spend those costs again, your distribution would be $ 0 for years.

    Currently, development costs are being deducted at a rate of $ 6,000,000 per year. Development costs have swung from a surplus to a deficit, and XTO is advising costs to be $ 6 - 8 mil. That tells me that in the near future, development costs will increase and cut further into your distribution.

    Average daily gas production: 2012, 55,658 : 2011, 59,433 : 2010, 65,959 : 2009, 72,991 : 2008, 76,984 : 2007, 76,965 : 2005, 82,155 : 2004, 82,619 : 2003, 86,276 : 2002, 94,014

    Average gas price: 2012, 3.28 : 2011, 4.73 : 2010, 4.72 : 2009, 3.38 : 2008, 7.75 : 2007, 5.70 : 2005, 6.64 : 2004, 4.99 : 2003, 4.54 : 2002, 2.44

    Development costs, in million $: 2012, 6 : 2011, 8.8 : 2010, 7.25 : 2009, 10.63 : 2008, 9.83 : 2007, 42.75 : 2005, 51.7 : 2004, 21.3 : 2003, 12.9 : 2002, 22.73

    So bury your head in the sand and hope that $ 5 gas is going to save you. Personally, I see an aging drying up gas field.

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    • " Personally, I see an aging drying up gas field."
      That is the standard profile of a royalty trust property. SJT's wells have been producing for many decades and will keep producing many more. These are not shale wells with huge decline rates. If they spend more capex they could increase production. Increasing production during period of low gas prices would not be beneficial for trust unitholders as there is no replenishment of sold reserves.

      • 2 Replies to lizahuang54321
      • Conventional and unconventional wells all have high decline rates in the first few years. The shale wells (unconventional) typically exhibit higher declines.

        The poster though is correct, Hugoton is a dead field. Unless someone finds a different interval that produces oil or liquids rich gas, you will continue to see a slow and steady decline in production. I too have plotted production, distribution etc for HGT, SJT, PBT, SBR and CRT going back about 10 yrs. I update the spreadsheets every month or so when the distributions are announced.

        HGT's production is dropping and the $6 million in capital expenditures are not enough to stop the decline, only enough to help slow it.

        An investor though might hope for a spike in gas prices for the next few years to say $4.40 or $5.00 (remember HGT gets the benefit of some NGLs). That might allow someone to collect the "healthy" 15% distribution for say 3 or 4 years. Long term though, you can expect it to decline year over year, production that is, distributions will be reflective of pricing and capital expenditures.

      • You are ignoring the math. Tell me the daily average production for the wells? I bet you haven't even bothered to look. I have done the calculation, and the average production of existing wells is pathetic.
        Look at the last time they spent 100 mil over two years and production still dropped. Provide me the math - tell me how much they will spend to develop and improve production. You can't because you never even bothered to research it - you are just talking out of your #$%$.

    • There you go. A gas field that still producing for 40 years while new filds decline over 50% percent in the first year. Exxon is fracking the heck out of the Hughon field right now. Dividends going up evey month. Why complain.

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