Enduro Royalty Trust (NYSE: NDRO) is a Trust paying a monthly distribution exceeding 10% annually. The stock is tracked by many investors for multiple reasons. Enduro's Trust has a solid distribution record dating back to November 2011, when the trust began. Some investors take the monthly distributions; others see the growth potential due to holdings the Trust holds and undiscovered gas and oil fields and unrealized income potential. One thing for sure is Enduro is currently delivery the distributions each month and developing more oil wells in 2014 with promising results.
In July 2012, Ward Williston Oil Co. transferred operatorship of its Williston basin wells to Enduro Operating LLC, a Fort Worth, Texas-based independent new to the state. The acquisition by Enduro appears to include 162 wells on approximately 30,000 net acres in the North Dakota counties of Renville, Bottineau and Burke - 97 wells in Renville, 39 in Bottineau and 26 in Burke. One hundred twenty-five of those wells are producers. They yielded an average of 669 barrels of oil per day. Many of these wells are in the shallower pay zones, that are simple vertical wells lowering costs and providing easy return on investment. Enduro's intent in purchasing these currently producing wells meets the low-risk business plans of the young company in 2012. Ward Williston Oil Co was interested in getting out of producing areas and invest in more exploration operations.
Location of Enduro Royalty Trust's interests in Texas and surrounding States
Enduro owns 4,800 gross (1,200 net) acres prospective in the Wolfcamp area of the Permian Basin.
Enduro acquired the Lost Tank Field from a major in January 2011 at which time the field was producing 544 BOE/D net. The field is operated by Occidental Petroleum, producing nearly 750 BOE/D and contributed $11 million of net profits during 2012 and expected near the same production for 2013. As you can see in the depiction below, the 2 wells on the left that became operational in 2013 and 2 that drilling began in Q4, 2013. I was not able to confirm the last 2 have completed drilling, but the target rich area encourages that production will remain strong and may increase with these wells coming on line.
During my last article on Enduro Royalty Trust many readers commented on the validation of estimated reserves and how the company and the industry assess the information and how accurate it is to the ground truth. Many times the assessed current reserves are what is known at the time of the assessment. Estimates can go up or down, but mostly likely when more reserves are identified, the numbers can increase. In newer areas, the changes are more likely, however, in older, more developed fields the numbers are usually more accurate. The one change that can affect the number are new techniques or technologies that allow an increase in the extraction of oil or gas. Fracking and pumping CO2 into wells are two examples of new techniques allow an increase of extraction. You can read my previous article and comment here. My initial assess still stands, as I still find a solid rate of return in this investment.
On January 21, 2014, Enduro Resource Partners LLC, the sponsor of the Trust, received drilling proposals in December 2013, from Pioneer Natural Resources for 3 gross (0.8 net) wells in the Wolfcamp play in the Midland Basin. The wells have been drilled and the completions are scheduled in late January. The wells are anticipated to begin production in February 2014. This is the type of investment Enduro is interested in as the exploration and drilling is complete, and they focus on the extraction and sales of crude that directly supports the cash income, and bottom line payout to investors in distributions. I anticipate a company release within the 30 days (probably linked to the announcement of the February distribution) that the deal is complete, an increase in the estimated reserves has increased and the stock price take a mild bounce.
Enduro Royalty Trust in 2011 they had 25.6 million barrels of oil equivalent (mboe) of oil in the holdings. As of December 31, 2012, the underlying properties had proved reserves of 21.4 mboe. The number of wells will continue to rise over the next few years and production numbers will increase. As the earlier wells begin to reduce their production over the years the follow on wells will produce. The top producing years are expected to be from 2013 through 2018. Any additional finds would increase the amount of oil reserves, along with additional extraction techniques to increase recovery capabilities. The sweet spot for investing in Enduro could extend beyond 2020. With the reserves from the Pioneer deal above, Enduro could continue to find new fields through multiple methods to extend their reserves.
In the same news release as above, the company has released it capital expenditures of 2014. The expected range is $27 to $30 million dollars with the bulk in the Wolfcam Permian Basin, followed by interests in the Texas-Louisana oil fields.
Projects began in the fourth quarter of 2013 and will continue though 2014, Enduro anticipates 25 locations to be drilled on the properties in which the Trust has an interest, ranging from 6.25% to 25%. Enduro estimates tht the projects in the Woldfamp will provide internal rates of return of approximately 50% at $90 per Bbl crude oil and $4 per Mcf natural gas prices. Capital costs per well are expected to be $7.2 million gross with estimated ultimate recovery of 525 MBOE. This development is anticipated to increase the Trust's oil prodction in 2014.
Last but not least, the company announce the monthly cast distribution of $0.117935 per unit will be paid on February 14, 2014 to the Trust's unit holders on record of January 31, 2014. The distribution primarily represents oil production during the month of October 2013 and natural gas production dring September 2013. This is a drop from the December, 2013 of $0.134090 and the 7 previous months of higer distributions. The difference is less than five cents, but with the additional wells coming on line in 2014, the production will increase, the sales will increase and we can expect similar distributions in the future.
Enduro Royalty Trust is a Delaware statutry trust formed by Enduro Resource Partners LLC to own a net profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from certain of Endurl Resource Partner's properties in the states of Texas, Louisiana and New Mexico. As described in the Trust's filings with the Securities and Exchange Commission, the amount of the periodic distributions is expected to fluctuate, depending on the proceeds received but the Trust as a result of actual production volumes, oil and gas prices and the amount and timing of capital expenditures and the Trust's administrative expenses, among other factors. Future distributions are expecte to be made on a monthly basis. For additional information on the Trust, please visit www.enduroroyaltytrust.com.
I feel I must include that an end state to the Trust, even though it is not likely for many years into the future, Enduro has stated in their prospectus that the trust will dissolve upon the earliest to occur of the following: 1) the approval of the holders of at least 75% of the outstanding trust units, and sells the Net Profits Interest, (2) the annual cash available for distribution to the trust is less than $2 million for each of any two consecutive years, (3) the holders of at least 75% of the outstanding trust units vote in favor of dissolution or (4) the trust is judicially dissolved. So, although Enduro is classified a perpetual trust, there is definitely the potential for an end to the trust.
Is Enduro a good investment? With a stock price of 13.23 (opening on January 28, 2014) and the estimated dividend $0.11 per month ($1.32 per year) that is a yield of 10%. The current price rebound $0.97 since November 2013 and should hold steady in the $13.00 to $13.50 range for the extended future. We can expect production levels to remain constant and the return on investment continue the double digit return. With production steady for the next 4-6 years the price and returns will continue. There is opportunity for undiscovered reserves from the wells to increase the value and length of time the wells can pump. Time is also a positive for developments and new techniques to recover more oil from wells. One additional advantage with Enduro Royalty Trust, there is no production limit or end date, and if the trust is terminated, the unit holders will likely be eligible to receive compensation for the remaining assets.
My assessment is Enduro Royalty Trust is a good investment that will continue to provide a double-digit returns over the next 5 years without a significant drop in original principle. Investing in this trust the investor must carefully track the remaining reserves and decide if and when is the appropriate time for them to enter or exit this investment. Since my last article on November 14, 2013, the unit price was $12.26 and as of the open on January 28, 2014, the unit price has climbed $0.97 to $13.23.
Disclosure: I am long NDRO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.