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San Juan Basin Royalty Trust Message Board

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  • rrb1981 rrb1981 Apr 23, 2012 6:59 PM Flag

    buy low sell high

    It is looking like, if natural gas stays in the low $2/mcf range, SJT will average around $.75-$.85/unit/yr in royalties.

    I think people can argue about what an acceptable yield is (i.e. multiple to put on that earnings stream) but I believe a 7-8% yield is appropriate. One could argue that with no debt and no real operating activity, it is less risky than an MLP, though without the ability to acquire additional reserves.

    If we assume a $.75/unit/yr distribution and a 7.5% yield, SJT would need to trade around $10.00.

    Now clearly natural gas may recover and perhaps others believe a yield lower than 7.5% is acceptable..but it appears to me that SJT has more room to fall. If gas stays flat for 2 or 3 yrs, not only will the distribution stay low but also there will be fewer new wells drilled in the trust property which means volumes will begin to taper off slightly.

    I think the trust is attractive at $10, but find it too risky at $16

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    • One reason that apparent YIELDS should be higher on the royalty trusts is that they are depleting assets. The reserves can only be sold once. Sure, there will still be some distribution from SJT. But is will actually be a Return of Capital. With NG price of $2.00 and unit price of $20.00 it is impossible to get the invest back with a profit of any type, and maybe not even possible to get the investment returned through distributions. At a $10 unit price a buyer will have at least a fighting chance for profit, provided NG prices improve quite a bit from current levels.

      • 1 Reply to cmeng
      • I believe gas will eventually recover to $3.40-$4.00/mcf. It will take a few years but as has been pointed out, eventually more and more producers will focus on oily prospects.

        San Juan will be paying out distributions on royalties received 10-20 yrs from now without question. The question is what will those payouts be, and what kind of yield will investors receive.

        This is too rich for the risk at this price. Gas could stay down for several years. Distributions could drop below $.06/unit/month. I think we need to see $10/unit before this becomes very attractive.

        One of the real problems is that the bulk of the production is dry gas. No uplift from liquids.

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