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San Juan Basin Royalty Trust Message Board

  • OilTexas OilTexas Oct 25, 2001 6:43 PM Flag

    PV Calculation

    Maybe someone can help me with the math on the present value calculation of distributions from this trust. My HP12C says that the PV at 5% of 7 cents a month for 10 years is $6.60/unit. Now, given that 7 cents a month for 10 years are very generous assumptions (unsustainably high), why does this unit trade at such a premium? 5 cents a month (longterm reality) gives you $4.70/unit. What assumption must be wrong in my calculations to get to $11/unit(implicit 12 cents)?

    To get $11 back, the trust would have to distribute 7 cents/month for 13 years or 5 cents/month for 18 years with no discounting. I know that does not include any value for the tax benefits but that hardly seems material given how far out of the money this unit seems to be.

    Can anyone shed any light on this?

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    • ""As we all know with numbers you can derive anyhing you want to prove if you try hard enough, but that data doesnt really show any trends whatsoever""

      what are you talking about ? there is nothing to prove.
      You can look at the price of ngas, it peaked in Jan and has been coming down ever since. If that is not a trend in your mind, fine .

      If you like to think SJT has done better than Tbills over 20 years, do so.

      "" My main point of contention was that you have made it sound as if anyone holding SJT (or NG RTs in general)is an idiot but you would still buy it, albeit at a lower price. The logic escapes me.""

      ?? SJT is a simple RTrust , it is not a stock with R$D or other property that might hit new home runs some day. It simply is worth the NPV of its distributions.

      I think its crazy at 11 but a buy at 7 and down ( got that? and down ) because we are going into winter with a Larger than normal supply of Ngas, and I think Ngas will continue much lower over the next couple of months, the process that started last winter is still underway.

      The difference between 11 and 7 is 4$, equal to about 100 months of distributions at the current rate. ( yes it should rebound before 100 months are up.

      What is so dumbfounding about not liking something at 11 but at 7 6 5 ?

      If and when Ngas approaches 1.50, I would expect production to start drying up and eventually price will start up again.

      Go to quote . com again, put in SJT /ngz1, don't forget the space, it is a reflection of SJT vs the price of Dec Nat gas. Or don't .

      In energies the lower the price goes the more you want to own, prices are self curing. That is how I see it working.

      There are far more than 800 entities that own SJT, the 800 # , if Merrill has 5000 owners, it showsup as one. Though to get the tax benefit maybe you haveto have it in street name ? not sure there.

      You guys seem to think you win by agruing points.

      The market will do what it will do.

      The price of San Juan gas was posted as information, it sold at 5$ and higher last winter, yes that is true.

      "" But, there are also a number that bought it, know what it is and plan on keeping it for income for a while longer "'

      I don't see the mkt as one sided, takes two minds. If and when those who bought it and planned on keeping it for income , find out the income is smaller than they hoped and the principal price is falling and tire of it and sell, I will bid for those shares.

      That is how I see it.

      "" I do see a lot of repetition of earlier postings comments but no answers.""

      I can't say it any better, watch I guess.

      I may be wrong.

    • Sorry no help in your response. I do see a lot of repetition of earlier postings comments but no answers.

      With regard to stating facts, lets get some clarified:
      1. Looked at Quotes.com, data goes from only late 1998 with a spike almost straight up then sown. As we all know with numbers you can derive anyhing you want to prove if you try hard enough, but that data doesnt really show any trends whatsoever.

      2. "tbills have done better in the last twenty years" This statement has never been proven. I've tried to find distributions going back that far and haven't found a source. Anyone know where to find? Yahoo goes back to 11/87. In that month, SJT closed at $7.50 and since then has paid out distributions of over $10.00. By my simple calculations, $10.00 over 14 years is about $.715/year or over 9% per year on $7.50. In addition at $10.80 today, there is a capital gain of 44%. Even going back 20 years to 11/81 the price of SJT was about $9.50, still less than today. Your $20.00 (or $15.00) is its all time high during the first few month of trading and I dont have the info to determine what exactly they were expected to pay/paying initally.
      3. Lots of rheteric, but selective info - like $1.76 11/13 spot for San Juan. Two weeks earlir it was $3.00 and a week earlier it was $2.50. Hey, I bet that constitutes a trend to zero!

      I'm not saying you shouldn't keep posting you opinions. That's what the board is all about. I just think there has been some distorting of info to make a point that bears rebuttal.

      My main point of contention was that you have made it sound as if anyone holding SJT (or NG RTs in general)is an idiot but you would still buy it, albeit at a lower price. The logic escapes me.

      Lastly, almost half of the trust's units are owned by institutions and there is barely 2000 unit holders in total. Haven't a clue how many of them don't know what they have bought, but more than likey there are some - just like about anything else that gets sold. But, there are also a number that bought it, know what it is and plan on keeping it for income for a while longer

    • I do not think I ever suggested anything of the sort. I don't even recall answering any of your posts directly except when you attacked me for voicing "no opinion". I will no longer voice any opinions on NG as everyone wants to cheerlead this and other securities like it into hieghts that no logic can support.
      I rest my case with:
      http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp

      And by the way, commodities do go down with time until a base level is reached that is dictated by cost to produce. Then only increases in efficiency can lower them further. This has been the case for a long time.

    • You have voiced opinions, suggesting my information as incorrect.

      You think Ngas will average 3.50 - 4.50 in the next couple of years.

      I see supply at about the highest of the last 6 and prices 50% over the general price of that period of time.

      Use grows about 2.5% in recent yrs and supply about the same, thought this yr supply is growing faster than use.

      You maybe right.

      Sorry to mix up the board. I will lie low...

    • " Pretty amazing to be bashing NG endlessly whn SJT is at $10.50 but still have the nerve to say buy at $7.50. Given the likelyhood of "losing half your principal" on a vehicle that will pay "less than tbills", it does make one wonder... ""

      I don't "bash" natural gas, I state facts and my opinion on the economics I see underway.
      Nothing I say influences the price of natural gas, it does what it does.

      go to quote.com, live charts and click in NGZ1, monthly , to see the trend, I don't do it , it does itself.

      Mineral economics 001, Ngas is a commodity, high prices hurt demand and bring on supply and the reverse.
      Go to harlandeneregy and check AGA stats, there was one week ? in the last 5 years where supply was higher. Real commodity prices ( adjusted for inflation ) go down over time, they have since cave man days. ( I think Thomas Sowell in a recent economics book, it the bookstore, said in any 10 yr period of time real natural resources have never advanced, )



      With RTs like SJT, your monthly payout is your return of principal, it depletes away, the return is dependent on price and volume.

      In the last 20 years Tbills with no risk beat SJT, I don't know about the next 10, Tbills are ? 2% right now.

      What makes you wonder what ?

      The history of commodity prices is boom and bust, high prices bring on production until the price gets low enough long enough, and then prices start to rise.

      Low prices cure themselves the same as high prices cure themselves.

      If SJT gets to 7 I am interested in scale down buying, expecting that over a few years we will set up for another price rise.

      I hope that helps ?

      I apologize I get a little strong because so many seem to sluff off common facts.

      For as long as I can remember there are ideas held by some such as energy prices are always going up , power generation demand will over take supply, technology use of electricity is exploding, last winter some claimed Ngas would never be under 5$ again etc. Misnomers all in my experience.

      IE , I saw a Title of a report at Arthur D Little, saying office technology and telecom use of power is 3% ofthetotal and is expected to reach 4% is 10 years.

      How many nat gas bulls would guess that ?

      Beyond facts, my scenario may not come to be, it is just my view. I have been wrong before plenty of times.

      I really think there are many , or a %age, who have bought for the dividend assuming it like some common stock , and I think there is excessive belief that Ngas is in a bull market. As both those owners learn otherwise, I
      think it drops.

      11/13/01 Enerfax quote for spot is 1.76.

      We have to do our homework, and take our chances, and I assume no one would depend on a post at yahoo to make a decision. If someone here posts something that clicks, look into it, if you think anything I post is full of crap, ignore me.

      I clicked strongsell as semtiment, maybe that will make it go up.!

      The CRB index looks like it is trying to reverse up after a BUG slump in sept and October. fwiw

    • Pretty amazing to be bashing NG endlessly whn SJT is at $10.50 but still have the nerve to say buy at $7.50. Given the likelyhood of "losing half your principal" on a vehicle that will pay "less than tbills", it does make one wonder...

    • I just can't win. I even get bashed when I refuse to voice an opinion. This is a real interesting board. A case study in human nature I guess.
      Oh well, I will still refrain from voicing my opinion even if I do get beat up over it.

    • If you look at the postings list, the negatives are definitely in the majority not the minority.

      I don't believe the positives even resent the views of the negatives. We just don't like being called stupid.

      A difference of opinion on this or any other "stock" is what makes a market. There isn' even a clear winner or loser as each has his own goals.

      We'll just have to see how this one turns out down the road. Hey, what if one owned Enron?

    • OILTEXAS...

      The RT's are a form of yield musical chairs, and the PV is only one component. T's rate sets the yield target, and sentiment as to future gas prices seems to dampen the response time to monthly dists : plot SJBasin gas prices vs. monthly SJT avg. yield vs. T's rate vs. time for the last couple of years and you can see the dampening effect of investors using the TTM numbers coupled with the delay from prod month to dist announcement.

      I remain short on this issue...paying $.04/month doesn't bother me.

      As for PV, it just doesn't really figure in substantially to the share price until the music stops...these are long life reserves of CBM mixed with the continued downspacing/development of multiple conventional pays, so there is time for this issue to cycle several more times.

      Meanwhile, check out the PV of TRU at these gas prices...is that the fat lady I hear singing?

      NOMOWK...how's it going? Keep up the good work!

      Good luck!

      • 2 Replies to Axecent
      • huh ?? PV plays a big part in valuing RTs, its destiny.

        The whole deal here is retail has bought up this stuff, looking through the paper for some yield, when in fact the payout is the ONLY return.

        As they slowly learn their error and sell, price will approach NPV.

        If it drops under by 25% SJT may be a buy.

      • Good morning
        Nice to hear from you. I thought you might have given up. I tend to agree with your thoughts on PV and how it relates. Unfortunatly, we are human and don't really have forsight, only hindsight. My analysis that I use to invest in bonds/RT's etc takes PV into account as well as current 10Y T's. I also use some self generated "risk" fudge factors that I assign numerical ratings to. I do not care to share them, as no one looks at risk the same way. It has worked for me, and Ihave been using them for a good while. Right now, it still says most and maybe all of the popular RT's are overpriced. I will stick to that, and if I am wrong, then I will just have to stick the 3-4% that I am getting elsewhere, into my bank and live with it. Some don't think RT's have any risk except for depletion, and they should review that.
        Take care, and have a nice day.

    • How you come up with $.07 being generous for the next ten years is just the very beginning of your problems. How you came up with 10 years and how you come up with only requiring a 5% return all all additional problems.

      Hey... if you are convinced that $4.70/unit is in the cards, I'd suggest shorting about 10,000 units would make you a nice return, especially in this market.

      Good Luck,
      NHY

      • 1 Reply to Need_High_Yield
      • I am not sure of what is in the cards at this point. I am trying to figure that out.

        It seems that at the hitorical trading range for NG of $2.25-2.70/mmbtu over the past 15 years, the average operating costs, capital costs for the trust and the long term average monthly volumes (not declining) that 7 cents is at the high end of the range. That would assume that there would be no natural decline in production.

        In todays interest rate environment 5% seemed like a conservative number but if I were to use something higher this trust is at a ridiculously high price. Using 10% will never give you an answer over $5/unit unless NG is at a multiple of the forward futures curve.

        I am just using typical reserve based fundamental analysis, what am I missing?

 
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