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San Juan Basin Royalty Trust Message Board

  • thpoc thpoc Nov 19, 2004 7:17 PM Flag

    Cheers to all

    Congrats to ic4x on the dividend call. I'll stay away from that area of expertise. I did make the call the announcement date would be Friday and to buy ahead of the announcement and prior to winter. It turns out winter is coming early in Europe, which was a big reason energy prices jumped today. I also think the weak dollar will support US natural gas prices
    since a weak dollar is benefical to exports, especially in the chemical industry, so industrial use will remain strong.

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    • Be careful, the principal reasons for today's energy sector run-up (including SJT) was the refinery outage in Venezuela and the Yukos noise.

      The ensuing relief rally was looking for an excuse to show itself and will likely be short-lived as weakening fundamentals continue to show themselves.

    • <<<Yes, I do agree that fuel switching from higher cost (on an equivalent btu) crude to nat gas has happened and continues to maintain. But, I feel that all the switching that is going to happen has likely already happened, unless crude makes a new high>>>

      I do not claim any expertise regarding the switching issue. However, I know that numerous apartment buildings, for example, are readily able to switch. Now, whether a building has already switched or will still do so, its winter usage of NG would seem to necessarily have to increase going forward. Accordingly, it seems to my lawyer/ math major mind, that a presently large storage number would actually not be that large when adjusted for the increased drawdowns to come in the coming months from all the switchers due to the high crude price. Even if someone has already switched, the increased demand is not yet reflected so as to reduce the storage number, but it will be over the next few months as the switch gets translated into increased demand. Thus, the storage number is to some extent -- how much is unknown to me-- artificially high in that it does not yet reflect the increased demand resulting from switching. I may be missing something and, if so, I hope you or one of the other experts here, can set me straight. Thanks.

      P.S. I guess what it comes down to is what is the lead time between a decision to switch and an actual resulting storage decrease? My premise is that there is a gap as the NG isn't all immediately bought by the switcher.

    • Most of the industrial uses of nat gas (heating fuel, feedstocks, etc.) are likely already switched and factored into the current demand scenario.

      The switching factor regarding winter heating use of nat gas remains to be seen I suppose.

      Most everyone here in the south/southwest where I am burn nat gas only. I have friends living on the east coast that only have access to heating oil (and are cutting big checks right now to fill their tanks). Some commercial/residential buildings have the ability to burn both and/or switch, but I expect the percentage is not as great of an influence as the industrial switching was overall.

      The ongoing barometer will be the storage number and the weekly withdrawals vs. degree days. Weather will be the leading indicator but is remarkably unpredictable without a crystal ball. Still, it will need to be a significantly colder than average winter to burn the current ~3,300 bcf in storage down below the 1,000 bcf level.

      If we exit winter above 1,000 bcf and start building next year's storage on top of that, nat gas will likely be weak in my opinion.

      My rough prediction still stands that we are more likely than not to exit winter with 1,100-1,300 bcf in storage which has historically subdued prices.

      If oil remains in its current corrective phase and pulls back below $40 as winter closes, nat gas will be pulled further down with it.

      Things should be interesting in late February in anticipation of lower heating demand and we get past the heating oil frenzy.

      Should be an interesting winter...

    • "I have friends living on the east coast that only have access to heating oil (and are cutting big checks right now to fill their tanks)."

      They should consider buying oil in the summer for delivery during the winter months.

    • Good idea, I'll share your idea with them for next year.

      One's a law professor and not very savvy about energy or financial strategy.

      The others live in Boston and NYC and don't have a choice in the matter, they just pay their share at their building.

    • Just curious. You are obviously an extremely intelligent and well informed person vis a vis the market and ng in particular. Why is it that you are taking such a firm position in debating the value of SJT at this time? There are obviously many other fields and securities even in this field, that would make for far better shorts than this one. Of course, I am at no time saying that you are wrong in your opinion in this matter. Just curious as to why you picking one that is obivously a bit hotter that others. Keep all your posts coming, I absolutely love them and am learning far more than I ever would have imagined that I could regarding NG. Thanks again.

    • "It's this simple: if Winter is mild, Gunga is right, if Winter is moderate to severe, Gunga is wrong."

      On the whole, I believe that the global warming consensus will turn out to be correct (without that implying any opinion on Kyoto.)

      Therefore, I believe milder winters will prove to be the norm (without making any predictions about this one.)

      On this view, therefore, the anomaly has been the cooler summers of 2003 - 2004.

      Now if you consider

      1) about 2,000,000 housing starts per year (based on recent stats)

      2) a very substantial portion of which are built in the south

      3) and a very large percentage of which use gas for heating and cooling (about 80% I believe)

      Then for a longer term investor, the ups and downs of this winter are not too significant, except insofar as one also trades a stock like SJT.

      And for trading, rising interest rates, if they happen, could provide as much competition for SJT investors as rising temperatures.

    • I am not short SJT, I have a small short position in HGT (due to its relatively weaker production profile) which I'm carrying a loss on, I was way too early.

      I participate on this board due to its more active followers. Basically, my general thesis is that these trusts were certainly great buys over the last few years, but are now fully or over-valued in my opinion. Therefore, why keep your capital at risk.

      SJT has a better production profile than many of the other trusts, but it is still trading at a value that reflects almost all of the future npv of the dividend cash-flow using reasonably generous price and production assumptions. It seems more like a high-risk annuity than an investment at these levels, therefore why buy or hold.

      I also frequently get long-winded about how I think nat gas is going to be weaker in the near-term than many think. I'm a definite minority with this opinion.

    • Gunga---As I have said before I respect your opinions and assumptions, however I question one of your assumptions. You have used the past 5 years inventories and the present storage level as being above the norm. My question is do your calculations take into account new residential and industrial construction increases over these same 5 years. As you are probably aware most new resisential ( both homes and apartments) are now utilizing gas, with some apartments being able to interchange.
      Thus, to utilize previous storage numbers without factoring in the new construction creates a strong question in my mind. 1.4 -1.6 mln new homes alone will rquire a significant amount of NG. Any thoughts?

    • You are not necessarily in the "definite minority" thinking NG may get weaker in the short term. It very well may get weaker, just depends on the WEATHER.

      As for your analysis about SJT trading at or above NPV, sure it is, that is why you don't hold SJT to the bitter end, but since peak production will not happen until 2014 or later, SJT is something you can hang on to for 10 years and then dispose of it as investment before the depletion slope heads down permanently.

      An oustide energy analyst did a study for the State of New Mexico on NG in the San Juan Basin, the conclusion was that if one LNG facility was built in California (SJT's biggest market) then it would have no net effect, but if two LNG facilities were built in California, then producers in the San Juan Basin like SJT would have to look at other new markets to pipe their NG to, such as Phoenix and West Texas. But since the earliest even one LNG facility can be built is 2008, this is not much of a factor in evaluating SJT presently, we'll talk more about it in 5 years or so.

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