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Strategies & Market Trends : Value Investing
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To: TimbaBear who wrote (20478)1/18/2005 11:58:43 PM
From: Spekulatius  Read Replies (2) of 78683
 
Timbabear -re BPT The "yield" is really a return of capital for the most part. According to the last 10k the trust is supposed to fall below the 90,000k barrel number in 2013. This would also be the year that an investor at current stock prices would get is's capital returned (8 year x 12% yield) assuming that the trust payment stay the same. This would mean that the oil prices have to rise about 5% annually going forward. Depending on the rate you discount future cash flows. the future brea even point would be 2015 or 2016, where the output should be well below 90,000K barrels/year.

looking at the valuation from another perspective the trust economic interest per 2003 10k is 77M BOE with 21.4 M shares that is about 3.5 barrels/ trust unit. The royalty income at current oil prices is about 25$/barrel. So best case scenario is that you would receive 75$ (indiscounted). What are future cash flows of 75$ worth over many years? Certainly less than 50$. While i agree that this is not a straightforward short I think BPT is very richly valued. Any scenario other than increasing oil prices will result in an economic loss for the holder of BPT trust units at current prices. the same scenario would result is nice gains for an investor in E&P where you can buy a barrel of oil for less than 10$, thus my idea to use a short position in BPT as an oil price hedge for long position in E&P's.
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