The Galbraith article hit WHX hard today, but it could have been (or may still become) far worse. Anyone can blindly follow an article written on a security, or for that matter take the opposite view. While Galbraith has an obvious objective to make money on the price drop, at least they actually came up with what they believe WHX is worth, sent a letter to Whiting's Board (supposedly) and posted something explaining their position.
What is amazing to me is how many people don't do their own basic research before buying a security. I am continually bewildered at why people don't just read Whiting's 1-pager (last distribution announcement) and make their own assessment of WHX's current price using a basic fundamental valuation. It would take less time than posting on Yahoo or doing any sort of technical analysis; WHX is a simple security to value.
So if you're still reading this, before you reply, take the short time to read the last WHX distribution announcement and consider what remains in distributions using Whiting's own methodology. Your time will be better spent vs. posting here, and certainly better spent vs. blindly investing in WHX.
Sentiment: Strong Sell
I did my homework. On the WLL website WHX commits to pay investors 90% of the proceeds from 9.11 million barrels of oil equivalent (BOE).
Before the November distribution a total of 7,337,044 BOE proceeds has been paid off leaving 1,772,956 BOE to yet to be paid off. At a rate of slightly more than 300,000 BOE per quarter rounding down to 300,000 BOE per quarter for easy calculation leaves 5.91 full quarters to be paid in the future. This leaves after the November distribution appx. 4.91 full quarters left to be paid with a total value of perhaps $2.50 per share left if you are lucky.
I don't think I can post a link here, but do a simple internet search for 'Whiting USA Trust 1' and it should be the first link - the company's own explanation and documents for the trust.
Basically the Overview and FAQ explain the nature and timeline of the trust (ends in 2015 at $0) plus additional useful information. If you read the latest distribution announcement, take the remaining MMBOE, and plug that into their own last distribution methodology numbers, you get a future value in distributions of $3 - $3.50 (MAYBE $3.80 if you really push energy prices up, accelerate payments to reduce costs and assume lower cost percentages than historical, which goes against their own recommendation for future costs). Then discount the future value 10-20% for your expected return on investment, getting less than $3 current value.
Some tips: Use 1/6 for natural gas to oil MMBOE conversion (you can look this up and it fits Whiting's own calculations)
Use percentages of respective prior revenues to prior costs, taxes, etc. to project the same numbers using remaining MMBOE.
Keep in mind that Whiting's reported (realized) gas and oil prices are 15% to 20% or so below spot market prices since they have to figure in transportation costs from the wells to the hubs, as well as other liquids from the wells included in the total MMBOE which sell at a lower price than oil per MMBOE. You can see this in EVERY past distribution announcement comparing with the average oil/natgas prices over the same period.
Remember that Whiting will NOT allocate more than the remaining MMBOE to the WHX trust, regardless of how fast the wells produce. They appear to be accelerating output recently, but all that does is accelerate the end date of the trust (unlike WHZ which can receive more than the allotted MMBOE if production is accelerated). Possible reasons for increased output: to capture higher recent oil/natgas prices, to reduce overall costs, new wells coming online.
Sentiment: Strong Sell
Lisa, assuming WLL sale their units of WHX, this will increase the volatility of WHX, and even bring the unit price down. The winner, if winner their is, will be WLL. The sale will become a capital for WLL and maybe increased WLL distribution. I believe WHX once terminated will revert to WLL, they could invest that capital to increase WHX production. I believe that at some point WLL will sale its position, they may wait for the right unit price. I totally agree, WHX is a C___P shoot at best. The only play is the Xdate bump.
Galbraith wrote a letter. SA published good analysis comparing WHX and WHZ. Anyone willing to spend 10 minutes of their time can independently find quite extensive information basically confirming what Galbraith and SA pointed out. One can check pricing for puts and calls - and learn from it. The recent outcry over SA publication (the one before WHX and WHZ comparison) fizzled completely - many people anticipated the common outcome of WHX price going down but this time it did not (although did now - somewhat). Looks to me that WHX became a poster case in psychology of investing. That's why I intend to keep monitoring this trust. I expect that we've seen nothing yet. The real fun may start during the second half of 2014....
Fair point. It's not an actual article. They did put out a press release about the letter (PR Newswire). It appears that the press release was their real objective, whereas the letter to the Board was simply to support sending out the press release to sites like Yahoo Finance.
The Board should be fully capable of determining what the value of the holding is, as well as make intelligent decisions about holding it. My assumption is that Whiting has held the units for quite some time (since the beginning) and overall they will do just fine end to end on the investment, even though at times it has been hugely overvalued, as now. Whether they have a commitment to hold the trust units to the end, or they are doing it to avoid accusations of profiting from others' losses by selling at a peak, or just ignorant as the Galbraith article suggests, I don't know.