Spekulatius
...i would be interested to hear why you bought into BPT
Primarily for the yield....12%. I like a certain (about 5%) baseline level of dividend/interest/royalty income in my portfolio and this helps that goal.
...the issues with BPT is that production is falling by about 8%/yearly and the trust agreement provides for increased compensation for the operator (BP).
Production out of their 1100ish producing wells is in excess of 300,000BPD, the royalty is paid based on the first 90,000BPD. I'm not too concerned about dropping production just yet. If an when production declines below 200,000BPD, I'll likely have to consider how soon it will become an issue. Until then, I'm not concerned.
As far as increased compensation to the operator, why wouldn't it have clauses for automatic increases? For me, the way to measure this "opportunity" is by the return on the dollar spent to acquire it. At today's prices, that's about 12%, I'm OK with that.
The combination of both makes buying BPT a very bad bet on oil prices at the current valuation
Well, I'm in the camp that believes peak oil production for the world has already passed. I'm in the camp that believes oil demand will continue to rise even in the face of a world economic slowdown. I'm also in the camp that believes the US dollar still has quite a ways to drop. The combination of those beliefs has an offshoot that leads me to believe that oil prices probably won't go below $40/BBL on any sustained basis. Since this royalty is paid based on the price of a barrel of oil, I feel it an adequate buy for the reasons I'm using it for.
...I am tempted to get short again in BPT.
Well, that's what makes a market, no? But shorting based on the belief that something is overpriced without insisting on a margin of safety sounds dangerous to one's wealth. What is that saying? Oh yeah! "Markets can stay irrational longer than one can stay solvent."
I wish you well.
Timba |
