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Chesapeake Granite Wash Trust Message Board

  • dennisrfm dennisrfm Jul 5, 2013 11:44 AM Flag

    oil prices

    With oil prices over $100 a barrel shouldn't that be good for oil and gas trusts or am I missing something?

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    • well dennis...have you noticed the upward trend of about 10% of this stock price with the higher oil prices? Yes, it is good...and will continue to be good. The dividend is evidence of that. When gas prices start to fly....and they will (just look at rig count drilling nat gas and utility demands switching from coal to nat gas), then the stock price will continue. there are other large uses of nat gas around the corner, namely exports and Gas-to-liquids projects in the works by shell and sasol. These are huge users of nat gas that convert it to liquid fuels by the fischer-tropsch process. Its an 11:1 ratio of nat gas to crude oil corrected for mmscf to right now that would put making fuels from nat gas versus crude at 11 x $3.7....or approx. $40/bbl.

    • In the SEC reports, the trustee points out that they do use derivatives to hedge against lower prices, but it also puts a cap on the higher prices. The credit default swap on oil price is designed to keep from dramatically reducing the distribution regardless of the market price. Also benefits from natural gas and liquid natural gas which is not hedged. As I understand the payout, it is not a regular dividend, but will have to be treated as a LP on your tax return. Your tax should be much lower on distribution.

      • 1 Reply to t4two45
      • Well it's not a "credit default swap" as they are hedging commodity prices not loan defaults.
        But we know what you mean.
        And it's not a foregone conclusion that tax should be much lower on the distribution.
        If I recall correctly, CHKR has a pretty low deferral so you pay ordinary income on a significant portion and the tax may even be higher than dividend tax rates on an equivalent payout.

    • Yes, IF they pump crude and are not hedged at a lower price.

    • Good to hedge the future profits.

      Sentiment: Buy

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