Misplaced Interest in U.S. Oil & Gas Royalty Trusts: Ethan Bellamy, Senior Analyst at Robert W. Baird & Co., Advises Investors to be Extremely Cautious in This Area

Wall Street Transcript

67 WALL STREET, New York - July 7, 2014 - The Wall Street Transcript has just published its Oil & Gas Review 2014 Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Oil & Gas Review 2014

Companies include: SandRidge Energy, Inc. (SD), Chesapeake Energy Corporation (CHK), Breitburn Energy Partners LP (BBEP) and many more.

In the following excerpt from the Oil & Gas Review 2014 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Do you see more interest among investors in the royalty trusts these days?

Mr. Bellamy: We see a lot of interest, and in fact I spend a lot of time telling people that they shouldn't buy them. We have an extraordinarily accommodative monetary policy, which should be no surprise to anyone, and so we've had this incredible yield surge and search on by investors. We see a lot of individual investors that we run into by way of our private wealth management group here at Baird, where investors are screening for yield, they see something with a high yield, and they think that's compelling and they want to own it.

We spend a lot of time telling folks that if a trust unit or an MLP has a high yield, there's a reason for that. We're in the camp that the market is generally pretty efficient. There are some cases and some circumstances where that's not the case, but if you see something with a 25% yield, there's another story there, so don't just pull the trigger on that. Know what you're buying; caveat emptor.

TWST: So the search for yield is driving a lot of the interest. How does the boom in oil and gas exploration and production in North America play into that?

Mr. Bellamy: In some ways it's much less relevant for trusts from a fundamental standpoint, but in other ways it's very significant for the formation of trusts. For example, SandRidge (SD) has sponsored a number of trusts, and that has been an important corporate finance tool for them. It's effectively a strategy for monetizing assets and plugging holes in their cash flow budget, which is, I think, key. They are trying to develop the Mississippi Lime formation, and they need cash flow to do that.

They and somebody like Chesapeake (CHK) as well have carved out these trusts and effectively monetized that asset base...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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