This stock was trading for $19.30 per share when they announced this quarter’s distribution of $.46 per share and the fact they had abandoned a well they were drilling.
"In September 2012, VOC Brazos began producing from the first of three horizontal wells planned for 2012; the second horizontal well was abandoned due to mechanical issues with the wellbore; and the third horizontal well was spudded in October 2012."
Since this well was a horizontal well I would guess it cost several million dollars. A portion of this cost probably caused the current distribution to be reduced. The stock is currently trading at $14.52 per share. There are 17,000,000 million shares in this company. That means the stocks market cap has gone down by approximately $81,000.000. Unless everyone believes oil prices are going down and will stay down for the next 19 years, then this $81M relates to one abandoned well that was being drilled and I would assume never produced for the company. Draw your own conclusions.
I'm new to this board, so perhaps you've all been through this before, but page 18 of the 2011 SEC Form 10K gave a gross and discounted value for the proven reserves attributable to the Trust unit holders. The valuation took into account gross revenues from the oil and gas production, less expenses related to those revenues. It indicated the undiscounted value to the unit holders was $458 million and the discounted value was (discounted at 10%) was $258 million. A 10% discount factor appears reasonable for this sort of investment. Since the market cap is now about $243 mil., it is now more in line with what the financial statements were indicating as value. I believe it was overpriced earlier in the year, and that is why I did not invest at that time.
I suspect this current abandoned well issue won't be a significant adjustment to the analysis that the accountants will make with the 2012 10K, but we will see. VOC may now be a reasonably good investment.
Yes in terms of PV10, it is one of the cheaper Royalty Trusts. The problem is that there has been no communication from the trustee how the cancelled well will affect future distributions, on the both the revenue and cost side. At these levels, I think its a buy, especially considering its early days in the trust lifespan.
Same exercise, run against WHZ:
After what WHZ has already produced, approx 11.0 million BOE remain in the trust. WHZ’s mix is approx 72% oil,28% gas. I’ll just ignore the gas, which admittedly skews the calculations GREATLY. That leaves 7.9 million barrels of oil remaining to be produced/sold.
There are 18.4 million units outstanding. Each unit therefore represents .43 of a barrel of oil, produced and sold over time.
In the most recent quarter, it cost WHZ $14,747,857 to produce 356,599 BOE. That’s $40.59/bbl of production cost.
If, for the sake of this exercise, the whole thing were produced and sold this quarter at price of $80, minus production costs of $40.59/bbl, each barrel would be worth $39.41. Your .43 barrel is worth $16.94. Since 90% of the proceeds flow to the unitholders, your distros would actually be $15.25 (perhaps 10%? higher because of the gas I ignored)
I note that WHZ's production and production costs for the most recent quarter were significantly higher than VOCs, even though they are about the same size of operation. GLTA
And Whiting Trust (WHZ) closed at $18.79 today - about the same as Friday's close. So I guess your point is that WHZ is selling at a primium, while VOC is way oversold.
What effect will the storm have on price of oil? Rescue and repair trucks are driving all the way from Calif, and 18 wheelers will be hauling building materials, appliances and restocking items for months. Demand drives up price, right?
Last time I posted something like this, many of you contributed in ways that helped me refine my thinking. I want to take another whack at this.
After what VOC has already produced, approx 10.0 million BOE remain in the trust. VOC’s mix is approx 95% oil, 5% gas. I’ll just ignore the gas, which admittedly skews the calculations somewhat. That’s 9.5 million barrels of oil.
There are 17 million units outstanding. Each unit therefore represents .559 of a barrel of oil, produced and sold over time.
In the most recent quarter, it cost $7,404,114 to produce 211,542 BOE. That’s $35/bbl of production cost.
If, for the sake of this exercise, the whole thing were produced and sold this quarter at price of $80, minus production costs of $35/bbl, each barrel would be worth $45. Your .559 barrel is worth $25.15. Since 80% of the proceeds flow to the unitholders, your distros would actually be $20.12
It's not just the cost of the well. They also said future production and revenue to the trust would be lower than previously projected (however without quantifying the impact which leads people to conclude the worst):
"As a result of the abandoned horizontal well, future production volumes for the underlying properties in the Kurten Woodbine Unit will be less, while remaining costs associated with this activity will be incurred in the future quarterly payment period. Future distributions to the Trust from the net profits interest will be impacted by this event."
You are right Liza. There comment is not quantified. However if you read their comment they say reduction in future distributions relate to this one abandoned horizontal well that never produced. That means it has no effect on their other producing wells except for the additional cost of the abandoned well in the next quarter. I have a hard time believing this one well was worth $81 million dollars (25% of the entire company value)?