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BP Prudhoe Bay Royalty Trust Message Board

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  • diogenes1234 diogenes1234 May 22, 2000 7:15 PM Flag

    Prospects of BPT

    I suspect we are in agreement, working the
    problem from opposite ends -- if I understand correctly,
    you assume the Royalty Trust Unit price efficiently
    reflects future oil price, while I assume Trust Unit
    pricing to be inefficient relative to probable future oil
    prices and CPI inflation.

    However, I wonder how
    good my model is and post here my calculations for the
    assumptions early posited. Your critique greatly
    appreciated:

    A. If WTI holds at $20 and no change in the CPI,
    payments will be $2.98 through '04, ceasing therafter.
    Present worth of Trust Units @ 6 1/4% is $2.77.

    B.
    Similarly if WTI is $25, royalties continue through '09 and
    PW is $9.82.

    C. And if WTI is $30, royalties
    continue through'10 and PW is $18.11

    My own
    approach is to assume (best guess) that WTI will average
    $25 in '00, increasing 2.5% annually thereafter, and
    that the CPI will increase 2.0% annually. With these
    assumptions, royalties will continue through '17, and
    discounted rate of return (cash on cash) is 18% on present
    Unit price of $10.50.

    Interestingly, when
    Trust Units were below $5 and WTI pushing $10, rate of
    return was zero to negative.

 
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