Analyzing third quarter results filed as Form 10-Q with the Securities and Exchange Commission on October 27, we reaffirm estimated Net Present Value (NPV) of US$23 a share for buy-recommended Hugoton Royalty Trust (HGT). On that basis, unlevered appreciation potential is 39% to a McDep Ratio of 1.0 where stock price would equal NPV.
Actually, most of the operating and financial results of the trust are disclosed monthly with the all-important distribution, and the 10-Q usually adds only a few details not already known. Cash flow from which the distribution is paid after deducting development outlays exceeded the expectations we last detailed in early July (see ISC Weekly, Rounding the Bend at HGT and SJT, July 10, 2009 [pdf]).
Distribution gains appear likely to continue in future quarters. The current quarter is off to a good start with the October distribution. Because distributions depend on prices from two months ago, the November distribution to be declared around the 19th will reflect the September low point in industry natural gas price. In July and August, Chairman Bob Simpson of XTO Energy, the founder of HGT, increased his personal ownership of HGT to a million units from 700,000, according to filings.
Originally published on November 6, 2009.