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Linn Energy, LLC (LINE) Message Board

  • rrb1981 rrb1981 May 25, 2012 7:35 AM Flag

    Hugoton Trust (HGT)

    Very interesting situation. XTO (Exxon) apparently underpaid royalties for many years on what looks like ALL of the trusts wells. 3 lawsuits filed. A very good possibility that all are successful. HGT will have to repay the back royalties. A very good chance that the monthly distribution is cut to virtually nothing. Granted, the proceeds must be sourced from the specific wells, so if they are only successful in 1 or 2 of the suits against HGT, they still might pay a partial distribution

    I think it drops to sub $2. Might be a very speculative play once it drops. Will take up to 3 or 4 yrs to repay back royalties. The stub might be worht $3 or $4 depending on how far out the reserve life gets stretched.

    An interesting situation and also bringing down some of the other trusts a bit which is presenting interesting buying opportunities to play an gas/oil bounce.

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    • Did you even call Investor Relations at HGT?
      I was told 18 mos max to payback, the distribution might not go to zero and that the proven reserves at current prices value the shares at $17.00 each. I believe life of trust curently estimated at 14 years.
      Big haircut but bigger upside after the dust settles.
      When the dividend investors all get out the value buyers will have a bargain.

      • 1 Reply to captspearpoint
      • I think you are referencing he first lawsuit.

        There are lawsuits that impact all of HGT's wells.

        First, you have to payback the underpaid royalties, next you will be paying them back with reduced proceeds (because you will be paying the royalties correctly going forward) and finally, you have relatively low prices, which will hurt.

        I think it will be closer to 3 yrs with perhaps only minimal distributions.

        I am waiting to buy when it gets down much much cheaper. Trust me, it will get cheaper.

        I am not worried about the reserve life. It will continue to be 14 yrs for many years. That is the beauty of many of those trusts. New wells are drilled and they prove up more reserves and with lower production, that also helps stretch out the R/P...

        I am waiting till it drops at least another couple of bucks before I look more closely.

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