I have not seen much mention on here of late of the coming "dividend cliff". Unless oil prices begin rising sharply after 2017, the dividend will be falling rapidly. I estimate that oil prices will need to rise about $7 per year after 2017 to offset the increased chargeable costs that are in the prospectus. By 2022, I estimate that oil will need to be over $140 per barrel for BPT to pay its current dividend. By comparison, oil futures out in that timeframe are around $82 per barrel - so oil has to be over 70% higher than the current futures price for the dividend to be sustained at current levels. Has nothing to do with proven reserves being underestimated or whatnot - it is not about geology but about the prospectus. Anyone who is wildly bullish on oil out in the distant future would be better off just buying the $82 oil futures.
I concur with your numbers and actually think they are worse depending on the view of terminal value. I believe terminal value will be zero as production falls to the point where pressure in the pipelines cannot be kept up and the whole field is shut off by BP(They have no obligation to maintain field production).
In terms of field production, it has been and will continue to decline on a yearly basis. Straight from the prospectus:
The Prudhoe Bay field has been in production since 1977. Development of the field is largely completed and proved reserves are being depleted. Production of oil and condensate from the field has been declining during recent years and the decline is expected to continue. Royalty payments to the Trust are projected to cease after 2029.
The average well production rate was about 243 barrels per day in 2009, 211 barrels per day in 2010, 204 barrels per day in 2011, 197 barrels per day in 2012 and 188 barrels per day in 2013.
I ran a simple NPV using a 15% cost of capital and came up with 1.3 billion NPV. We are trading 2.1 billion market cap.
Production declines 4%/year
Costs increase 2%/year
WTI Increases 3%/year
What can I say, I'll post this:Company Profile for BP Prudhoe Bay Royalty Trust (BPT)
BP Prudhoe Bay Royalty Trust provides oil and gas services. The Trust receives a per barrel percentage royalty of the average daily net production of oil and condensate per quarter from British Petroleum's working interests in the Prudhoe Bay Field on the North Slope of Alaska. The old wells are being sold while new ones drilled resulting in increased oil production for the "Trust". This is one of the main reasons why the stock is south of $100. If you don't belive me please call BPT and they will tell you the same thing...the only I'm trying to guess is the div next month.
BP Prudhoe Bay Royalty Trust
919 Congress Ave
Austin, TX 78701
harv_mil. Thanks for even remembering - I used to frequent this board through 2005. Then I went to work somewhere I was not allowed to post. I would like to see some posts from some of those others you mentioned as well.
I don't think you know what your talking about. The dividend has been going up because the trust has been selling old wells at the same time drilling new ones thereby keeping the output up.You have no specifics just general bs. i think your short position is taking you "off the cliff" !
Sentiment: Strong Buy