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Summary

  • 25 additional wells coming on-line to increase revenue.
  • Expected increase in distributions throughout summer months.
  • Anticipate unit price to increase for the rest of 2014.

Enduro Royalty Trust (NYSE:NDRO) will release its monthly report for production and distribution payment later this month, and we expect a profitable string of distributions for the rest of 2014. Production numbers are expected to climb, and may encourage the unit price to appreciate. We believe Enduro Royalty Trust is a solid investment for those looking for a monthly distribution check or just a solid way to grow their portfolio.

Enduro Royalty Trust is a Delaware statutory trust formed by Enduro Resource Partners 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 Enduro Resource Partners' properties in the states of Texas, Louisiana, and New Mexico.

On May 20, 2014, Enduro filed a Form 8-K with the Security and Exchange Commission that described the May 2014, Monthly Cash Distribution. The key takeaway from this report shows Enduro continues to receive drilling proposals from Pioneer Natural Resources for the 2014 Wolfcamp drilling program. Of the 25 gross wells anticipated to be drilled in 2014, Enduro has received drilling proposals for 15 gross wells, of which, three are currently producing, seven are waiting on completion, three are still drilling, and two are waiting to be spud. Of the majority of the wells that are currently drilling or waiting on completion, the company anticipates the wells to be completed in June and July. Enduro has an interest of 6.25% from 6 of these wells and 12.5% from the other four.

The last monthly distribution (announced May 28 and paid June 13, 2014) was $0.082 per unit, which was paid for the February 2014 production. February's production numbers were slightly down, mostly due to the calendar of only 28 days in the month. The March production numbers will be released later this month, along with the distribution, however, we can assess the production was strong, and through the month of March, the market price was highly comparable. The high/low/average price in February, 2014 for WTI was $103.80/$96.26/$100.67. The same for March was $105.22/$97.37/$100.51. The variance will be that February had 28 days, March had 31 days.

In the March, 2014 SEC filing, the company reported 3 wells began production in late February, and full production will be included in the March numbers. In all three of these wells, Enduro has a 25% working interest. This increase should send oil production numbers up and push the distribution even higher.

The company shares the revenue of the production at various percentages for different wells, with multiple partners to the income, based on the agreement and work each provides. These latest wells are higher than many where the company receives 6.25% or 12.5%. These wells should represent a higher boost in revenue and result in a higher distribution over the course of the summer months.

The current unit price opened today (June 19, 2014) at $13.12, and with the anticipated distribution increases over the summer months, we expect the unit price to climb to near $15.00 by early fall. Production and the additional wells to be added throughout 2014 will keep production and the distribution up through 2014 and 2015. With the current distribution yield near 7.6%, and both the distribution and unit price increasing, we expect the yield to remain near the same. A monthly distribution makes a nice cash cow for investors wanting a monthly cash flow; those investors wanting to reinvest distribution can increase their yield value.

We are positive on Enduro's future, and look for the company to pay solid distributions throughout 2014 and 2015. The current wells' production will decrease over time, however, the company is still drilling new wells and has substantial reserves in the fields where the company is drilling. The initial estimation was of a 50-year life expectancy, and with advancing technologies, the opportunity to expand the productive life of the wells will create a profitable future for Enduro.

Disclosure: The author is long NDRO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Enduro Royalty Trust Should Be In Your Portfolio