Resist the Urge to Buy U.S. Oil & Gas Royalty Trusts Just Because They Screen Well on Yield, Says Ethan Bellamy, Senior Analyst, in an Exclusive Wall Street Transcript Interview

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: Is there anything you'd add in terms of what's important for investors to know about these quirky investments?

Mr. Bellamy: I actually have a lot to say on that question. After they go public, the availability of information on royalty trusts declines precipitously, so we have very good information and we know what the game plan is and what the assets look like at the time of the IPO, but thereafter investor communication on trusts is much more limited. They tend to do more bare-bones filings.

With the exception of NDRO and ROYT, there's not a lot of aftermarket support. There aren't typically conference calls held, or if there are they're held for only a short period of time. So the availability of information is much more limited.

Investors should be aware that there are both perpetual and terminal trusts, so some of these trusts are structured to go to zero, and that is obviously an important consideration if you're going to buy something. Typically you want a stock that's going to keep going up forever, whereas in a trust, your returns could be limited by the fact that it's a term trust and it will go away.

We're pretty cautious overall in the sector. I think there is probably more upside than downside from a trading perspective, given where natural gas is headed and given the underperformance in 2012, but overall, I'd say investors should be very cautious when they're playing in the trust market.

Resist the urge to buy things just because they screen well on yield. Remember that the market is mostly and generally efficient; there's some more inefficiency in the trust market, but if you think something looks extremely attractive, your starting hypothesis...

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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