Excellent observation, but WHZ is not WHX in that the termination is based on a date or a total volume produced, whichever comes first. Using the average quarterly production the volume will be attained in 6 years. So much for the long life of this trust.
The price of oil is a real concern. The currant opinion is for the WTI to dip to $80 or lower by 2016. This will be particularly difficult for oil producer because the production cost will continue therefore will increase the percent expense versus sales. Another real problem is the new Senator Baucus tax law not enacted as yet. It calls for oil and gas producer to write off their drilling expenses over a longer period of time, 5 years or more. Presently the total drilling cost can be written off on the first year. In a fracking situation, drilling is most likely the number one expense, and on a continuous bases. In order to keep the EUR you have to keep on drilling.
You have to look at the cousin WHX. They both look similar at the same time line. After the IPO the trust loses $4 or $5 and settle down for 3 years or so. Toward the end life it loses another $4 and slowly goes down to the end anniversary. WHZ has enter its middle trading ways.
Last quarter the low was $12.55 the high $14.34 or $1.79 difference. I believe WHZ curve is getting similar as WHX. It will go up/down $2 each quarter until the last 6 quarters of the life of WHZ. You just have to catch the price at the right time.
The value of the US Royal Trust is only the worst of the commodity exploited, in this case OIL and Gas. historically the index price of Oil or Gas increase year to year. Therefore the value changes with the index price. As the production progress over time, the volume to be produced diminishes. So if the price of oil or gas stays put, the value of the trust diminishes. The only other unknown is the index price. To make my point, it is the index price that set the value of the price, as long as the volume is large enough to increase the value of what is left to produce. On xdate the distribution is subtracted from the trust value. By accepting the distribution you speculate that the index price will be high enough to guaranty the next distribution. In other word you speculate on future earning. The future of US oil market will see index price under pressure because too much oil is produced. All US Royal trusts will suffer, too much supply and same demand.
If you invest in NG anything, you will see profit in 2015 minimum. It has to be a long, long investment. I am not in NG presently, I may in the future, it is an option to look at.
I find Liza post matter fact and interesting. To comment your point, meaning too much going to GOM. I am coming to the opinion that the refiners will come out better then the producers. The producers have fix cost and amortizations. The refiners profit from the crack spreads. Producers will see profit shrunk and will be unable to pass on their costs. The refiners will buy their feeds at lower price and the gasoline and diesel will go down, but the percentage will be friendlier to the refiners. It is going to be interesting to watch the next 2 or 3 quarters.
I agree there is never one rule. By enlarge all xdates are within 2 or 3 weeks. All stocks including trusts and MLPs go down, at list, the amount distributed, plus some depending on the followers. 8 out of 10 will follow the market. I am ok reading the market, I just am too greedy!!! LOL
Lisa, right on. The Southern Keystone will affect the price of WTI at the Houston/Port Arthur terminal. For this extra crude to reach Louisiana it will have to get to the Ho-Ho PP. Houston and Port Arthur will be flooded with WTI. For this reason Brent is no longer needed on the GOM. My guess is that refineries in partnership with Middle East majors will continue to import their Brent. One crack spread no one talk about is the Middle East Crack. My guess is the Saudi crack is close to $150 per barrel. The Saudi production is close to $40 per barrel. These refineries can export from the GOM to South America with huge profit.
The WTI and the LLS are the reference today. The East and West coast still have Brent competing, at some point the WTI or LLS will be discounted so Jones tankers will become competitive in the East Cost. West coast has its own story. Do not forget the WTI export to Canada, a new twist, I am not talking of diluent. Interesting times?
I believe, wright or wrong, that trading exhibit patterns. WHZ has for cousin WHX. Lately I look for patterns and WHX started high and after several months lost around $4 and for 18 month trade up/down $3 between xdate. I see WHZ starting to look the same pattern. The present quarter is the second in the new lower pattern. I will find out in 30 to 40 days if I am right. I did not sale after the xdate, this time. I will have to decide what trading I should do, sale before xdate and buy back at the low point shortly after xdate, or keep it!
Many do not understand crack spread verses the market in general. In this case the WTI/Brent is not the crack to look at. For ALDW the crack of reference is the LLS/WTI and WTI/WTS. Those are the API grade ALDW buys. To further complicate things ALDW is located in the Permian and Eagle Fort area. The WTI is light meaning more than API 45 on average. A WTI with an API 52 is discounted $2.60 verses a WTI API 45. So crack spread is important, but which one? Brent is no longer a grade of reference for the GOM market. West and East coast the Brent is still competing.
Liza I agree, but not with this OB. Incredible as it may, the US is exporting to Canada, not only for diluent. What is incredible is that the Canadian produces crude is exported and to fill the Canadian need Canadian refiners import US WTI. The US WTI is discounted verses the Brent international price. So Canadian producers prefer to export than using it for local need. So far the word is that 100 Mb/d is going north, the belief is that all the US excess WTI may go north, that could be 700 Mb/d. Incredible is it?
It is nerves racking for me as well. Looking back to the previous 6 quarters it takes 41 days to 21 days for the xdate price to appear again. We have to wait around 30 days to see the price get back to $13.52.
You are right, but the distributions are based on total earnings. The NG is part of it. If the crude makes money but the NG is a lost, it is reflected in the amount of distribution. Than older the trust is and more NG will be produced. It goes with the loss of reservoir pressure.
The southern leg of the Keystone will add more WTI to the GOM. The total need of the GOM is 3.7 MMb/d. The deluge of US crude will reach 4 MMb/d by summer. The Dibit and rilbit crude will add even more. The GOM wants WTS meaning less than API 45. The market is diesel, where gasoline is flat if not regressing. GOM refineries are going to modify their process in order to use WTI and the lighter crude. It will take time. Brent crude is no longer setting the price. WTI and LLS are the price makers. The west cost is starting to see rilbit and Bakken crude coming in Washington and Oregon. ANS is still coming down but Brent can still compete. Bakken is going to the East Coast, there Brent can still compete. My guess is that the GOM gasoline over production will find its way to the inland market and East Cost at a discount. ALDW is modifying its process to use WTI, it has to, all the WTS is going to Houston. The crack spread will be under pressure by 2014-Q2.
Kurt, first and foremost the tone of your posts are refreshing, I put you on the same list as Liza. Her post are constructive and respectful, although direct and pertinent. I try to be the same. Over the many years Liza has been a contributor to this MB, I have learned from her, as well with many others. As for those that do not behave with respect, I never read their posts, there not worth my time.
The K8 report publishes the BOE price for the quarter. Below find the result.
(For the purpose of qualifying BOE, 5.5 cubic feet of NG equal 1 barrel of crude)
2012-Q2 = $66.96
2012-Q3 = $70.65
2012-Q4 = $67.06
2013-Q1 = $65.69
2013-Q2 = $71.81
2013-Q3 = $82.47
$424.64/6 = $70.77
This means WHZ sales at a discount, which I call a hedge.
Kurt, I believe you never dealt with US Trust, the unit price is directly related to what is left to be produced. WHZ will not have 33 distribution. As Obama would say "Period".
The math is that on average the index price of crude will negate the lost earning due to volume drop. The statement is true for the 2/3 life of any trust. During the last 1/3, the volume left to produced does no longer follow the price increase. This is historically true, but the shale crude oil flood may change this rule. WTI and LLS have left the Brent CME train. US production is about to over supply the total US refinery demand. The GOM refinery supply is already 0.3MMb/d over the demand. The price of WTI and LLS will drop, it will take time, 1 year but it will drop. To make things worst the gasoline market is down as well. Diesel is where the demand is, especially export demand.
Liza I believe you like MLPs because the assets can change or be modified. That cannot happen with a trust. Western Refining has assets other places around the US. They have a small refinery near San Antonio. This refinery use light WTI from Eagle Fort. Because the refinery gets its crude supply with trucks, they have contracted a 8inch PP to eliminate the truck. Some people say that NTI MLP assets may include some of Western Refining other assets. There has to be an angle with MLPs, just not only taxes? Your toughs?