I also tried to model the pace at which the valuation decreases with each distribution. If you want to maintain a 12% IRR going forward, the valuation drops by $0.20 for each $0.60 cent distribution; and that number increases each quarter. So in next 4 quarters, unit value of PER will decrease by $1, and $1.40 the year after. The pace of decline then slows once you've worked your way through the distribution bulge in 2014-2015.
That's not being bullish or bearish, that's just math--every distribution that is paid is one less that a new PER buyer doesn't get. What that means is that there is no way this is ever getting back to $18--let alone $20. And unless it rallies really strongly soon, $16 will soon also be permanently in the rear-view mirror. Any rally to that level IMO will be a strong short-term sell signal, I don't think that price level will be sustainable.
I'm not trying to be really pessimistic, I bought this in 2011 and believed the numbers too. I only sold it last year because I was surprised that all the income was taxable. But I think this analysis holds true for all Texas oil producers to some degree, but trusts like PER are screwed because they have zero flexibility to respond to the market or grow their assets/production to compensate for lower prices.
It has been a few years, but these royalty trusts have depletion calculations when you are doing taxes. I really doubt that PER or any of the others are completely taxable. The one I did was prudoe bay.. seems like 40% of it was depletion... and that one had been around a while. You might want to check your tax calculations or get another tax guy. I am a tax guy, but no new clients, have too many now.
Thanks for info on PER and others, I have been waiting patiently.. think a good entry point is coming up soon.
It was a very simple K1--income was split between royalty income and interest income, minimal deductions. Other PER holders have confirmed that it is essentially all taxed at regular income rates, so IMO don't buy this expecting any tax advantage on the distributions. On the other hand, it seems just right for retirement accounts/Roths. Prudhoe Bay is an older trust, PER obviously has some different fine print.
Thanks for taking time out to give your opinion/analyses.. I'm guessing that you also believe SDR & SDT are doomed in the same manner? It appears that these trusts have been a fool's game.. So your are completely out of these trusts?
I haven't really looked at those in detail except in 2011-ish, when I thought PER had the best assets. Whatever else you want to say about PER, at least it is mostly oil, IMO the less dry gas the better. Right now I don't own any--when I sold PER, I bought PSE and QRE, which are also in the dumps--but have been considering PER for my Roth.
"It appears that these trusts have been a fool's game"
I'd like to be charitable and say that a couple years ago they seemed like a much better idea--the extent to which oil/gas production in USA is growing caught a lot of people by surprise.