Hugoton, San Juan Basin Royalty Trusts: New Lows on Gas Pricing Quirk

Though nearly all income and small cap stocks are trading at low valuations, buy-recommended Hugoton Royalty Trust (HGT) and hold-rated San Juan Basin Royalty Trust (SJT) set new lows this past week that may be related to a natural gas pricing quirk. The index price for natural gas in the month of November dropped sharply before recovering again in December and January. Index prices known at the first of the month are the most variable factor influencing distributions declared two and a half months later (see chart below where we plot index price two months after real time).

As a result, monthly distributions for SJT, and by extension HGT, were especially low when declared on January 20. While investors who read our research should not be surprised, the market regularly seems to react more than anticipated in this case. At their lows, HGT and SJT seem out of line with 15 other income and small cap stocks trading at a median 21% above their lows.

Originally published on January 30, 2009.

Comments

[kipnoll:]

Yeh, kids, it IS a pisser! SJT under $15.00 the share. I've had 10 years of heavy exposute to this stock, with an averaged cost just over $30 the share. So when that loverly divvie just desicates for a couple months, it is a time to worry. But, but, but - if you do your own taxes as I have for fifty years - you quickly realize it ALL gets recovered in lovely sweet percentage depletion allowances. (Do, however, get IRS pub 535: depletion is now NOT unlimited as before.) At under $15.00 the share, chart above shows a 12% return for the month. Hell's Bells, Dudes! I'm doubling down. . . this is too good to pass up. SJT is a buy for this old oil and gas guy. . .

Feb 25 02:20 AM

[Steve Ward:]

Thanks for the info on IRS publication 535. With luck, and the Prez needing some relief from his left wingnuts, maybe we get a carbon credit market enforced by Uncle Sam and we all get higher gas prices, providing the Canadians and the LNG importers don't flood the marke5t.

Feb 25 11:12 AM

[mc2406:]

How about reinstituting the old nonconventional fuels credit for shale and coal seam gas? This would help SJT investors a bunch and would seem to be right up the greenies alley. I still think its a buy at these prices.

Feb 26 10:52 AM