You should probably read all the risks listed in the 10-K. Most of the time, the risks are pretty remote. However, with the reserves dropping by 25%, there might be a greater chance of some of the risks actually coming to fruition.
I read the 10K posted on Yahoo which appeared to be the last one as it delt with all of 2012 income and I saw the last 5 distribuation payment but didn't see the projected payments till 2017 that you refer too. Were on the 10K does it detail the distribuation out to 2017? The price of the distribuation we have gotten has varied this year from a high of .72 to .61 so how does the projected amount come about?
I am LT so my questions are not aimed at doubting you but at seeing what your saying as I am thinking about investing more. The revenue (production driven) has fallen off almost 33% since the start of 2012 if that is what we have to look forward too on the decline curve each year that new wells come on line then once 2017 is passed I think looking for a distribation of no more than 20% of current one would be conservative. I think they are about 60 wells left to be drilled is that what you see? I do see no chance of the sub units not being way above of zero for a long while so that is not a factor in the distribuation.
Thanks for your post.
As liza notes, you can find the original prospectus on the SEC's website where you will see the projections for the distribution going out several years. You will also see the assumptions that they used to make those projections. As I recall, they post a targeted distribution amount, an incentive threshold and a subordination level. You will also see that the projections were based in part on the assumption that the sale price of NG would grow over time from the futures curves that they used at the time of the offering. So some of their future projections are based on NG prices over $7. Another point that they disclose is that they don't get the NYMEX price for their gas and instead take a discount which they disclose will grow over time.
I sold the balance of my CHKR based on my view of the technicals on the stock. It appears that the stock undergoes a "dividend run-up" a few weeks before the distribution is announced, but then resumes its downward trend. There is considerable resistance ahead, probably at $16.5) where it broke down and certainly at $19.
To me, these royalty trust stocks (including the ones sponsored by SD) have become trading vehicles to catch the divy run-ups. Then the hot money leaves leaving retail holders who may be trapped longs.
Liza you say that the chances are good that subordinate units will go zero before 2017 based on what another co has done? I looked at the report and the subordinate units was well above the 20 cent range and more wells are going to be drill so production should go up or stay the same but not change much till the well drilling ends. Based on the past 5 quarters I see very little chance that the sub units will take a hit at all. However it is clear that the trust will not preform as once thought on that we agree. The unknowns are the results of future wells and the price that they sell their NG for on the market. In the Past I have been very much upset by the low price that they get compared to the Henry Hub price and if that continues even if NG goes up to $5 bucks by this time next year which I fully think will happen that does not mean the trust will benefit by a buck increase most like will be more like .30 cents if the past holds true.
Given all this if I was in the market for a trust I would buy this one come Monday at these prices. I think you will get at least 60-70% of your purchase price back by 2017 and the rest would be spread out over 14 years with the possiblity of better. I see no way to lose money on a purchase at these prices the only queastion is how much you will make?
"what are the chances of subordinated share take to hit zero"
fairly high - it is already the case on a number of the other trusts. ECT subordinate units have been getting zero and the operator finished the drilling program a year earlier than planned with the result that the subordinate units converted to common and the threshold disappeared that much earlier than forecase. As a result, the next distribution for ECT (the first without the threshold) will probably drop from almost 70c to around 50c.