Does anyone have any projections on the distribution after the subordinated threshold ends next August? If the production declines too fast it may be worth considering exiting this trust before the subordination period ends. Any thoughts on this would be appreciated
Subordinated units is set up as a buffer to the common unit holder if the trust in case there is not enough amount for the minimum set distribution. When this happen the subordinate unit holder is not paid. The money goes to the common unit distribution. At some point the distribution amount is going down as the trust gets closer to it end of life. Therefore the need to have subordinate units becomes impossible. This is the situation that will come in place next August. What you have to watch is the EUR (Estimated, Ultimate, Recovery) That is the only data that will provide you with possible earnings. With no subordinate units, with same production, more is available to common unit holder. Few quarter down the road, distribution will be less. That is true with all US Royal Trust.
Only reason I am holding this POS is for a tax right off end of year I am selling. Lick my wounds and move on, it will take me several years to recover the loss even with the big divvie if I held onto it. Made 18% in one of my annuity's so far this year.....better places to put money.
steve and mellomike, lots of reasons not to be in these trusts. I have posted quite a bit on the reasons I think they are deficient vehicles. Liza mentioned ECT which was one of the first of this type of royalty trust. I think there is likely to be more bad news about production going forward. I think you are likely to see several negative Seeking Alpha articles on all of these trusts with much lower target prices. This causes even more dumping of units. I don't know if it is panicked retail or algorithms, but there is large risk of further declines. The only time the units rise is after a big selloff that takes them to oversold levels (RSI under 20) and then a few weeks before the next distribution announcement. The pattern seems to repeat each quarter. Each quarter investors hope for better news and are sucked in by the "yield" only to see further disappointment. Eventually investors are going to start to anticipate bad news and the pre-divy rises will be shorter and the declines deeper. .
SD will be showing the "new curves" for well performance in early 2014 , which may be helpful in estimating future payouts ( of course oil, liquids and NG prices will obtain as well)...early 2014 is a long way off though...